Paper

Table of Contents Executive Summary 4 Organizational Overview 5 Organizational Strategy 6 Mission, Vision, and Values 6 Miles and Snow Typology 7 Porters Competitive Strategies 8 Goals and Objectives 10 Organizational Structure, Design and Effectiveness 11 External Environment 13 Industry Sector 13 Raw Materials Sector 14 Human Resources Sector 16 Financial Resources Sector 16 Market Sector 17 Technology Sector 18 Economic Sector 20 Government Sector 22 Sociocultural Sector 24 International Sector 24 Internal Environment 26 Management 27 Marketing 28 Production/Operation 29 Finance/Accounting 30 Research & Development 33 Organizational Design for an International Environment 35 Products and Services 37 Information Technology & Control Systems 37 Organizational Size, Life Cycle and Possible Decline 40 Organization Size 40 Life Cycle 40 Possible Decline 42 Organizational Culture 43 Ethical Values 44 Innovation and Change 45 Innovation 45 Change 47 Decision-making 47 Conflict, Power and Politics 49 Conflict 49 Power and Politics 49 Key Findings and Recommendations 50 Bibliography 52

Merck & Co Inc., also known as Merck, Sharp & Dohme (MSD) outside the US, Canada and Puerto Rico is one of the prominent global biopharmaceutical organization in the world.[footnoteRef:0] Merck has committed itself to creating medicines improving patients’ lives is grown into a humungous organization today involving itself in highly significant mergers and acquisitions. Despite such business developments, Merck had a declining phase in early 2000s impacting negatively on the organizational growth especially after Vioxx scandal.[footnoteRef:1] Merck has divested its consumer business as of October 1, 2014[footnoteRef:2] aiming a change in strategic management and organizational growth direction. [0: Merck & Co. (n.d.). Company Overview. Retrieved from: https://www.merck.com/] [1: Husten, L. (2011, November 22). Merck Pleads Guilty and Pays $950 Million for Illegal Promotion of Vioxx. Forbes. https://www.forbes.com/sites/larryhusten/2011/11/22/merck-pleads-guilty-and-pays-950-million-for-illegal-promotion-of-vioxx/#59430ee920f4] [2: Merck & Co. (n.d.). Merck & Co 2014 Annual Review. Retrieved from: https://www.sec.gov/Archives/edgar/data/310158/000031015819000014/mrk1231201810k.htm]

It was in 1899 for the first-time Merck Manual[footnoteRef:3] was released with the treatment details of acute bronchitis, arsenic for impotence and almond bread for diabetes which became world’s most used medical references even today. Later on, research lab founded by George Merck, they began to develop and discover new drugs treating various diseases including streptomycin for tuberculosis. Merck began a flourishing journey increasing its worldwide presence in competition with Pfizer, Johnson & Johnson, Roche, and other competitors. This paper initially analyses Merck’s strategic action over years which had contributed to the optimal growth. It states various business activities taken by Merck in responding to its macroenvironment. Urbanization, life-style, global economy and globalization are the basic attributes which significantly impact business activity of Merck on a daily basis. Thus, this paper provides a detailed discussion about Merck’s internal competencies in order to thrive as a powerful pharma company. [3: Merck & Co. (n.d.). Merck & Co: Our History. Retrieved from: https://www.merck.com/company-overview/history/]

A comprehensive analysis of internal as well as external environment impacting Merck operations along with comparative facts of competitors are provided in this paper. This analysis gives insights on Merck’s action plan and overall performance retaining a leading position in the global drug industry. There is also a detailed section of financial performance which helps understand resource allocating capability of Merck and its evolution over years. Inferences from its prime competitors are also plugged in as to compare and contrast Merck’s responsiveness against the external atmosphere and competitors. A wider analysis of leadership and structural implications is also discussed by comparing with some of the industry best practices allowing to understand mechanism of Merck about its commitment to its mission and vision.

Continuous evolution in the global pharma market along with increasing stringent trade norms, recommendations are made for Merck facilitating it to continue succeeding in the extremely competitive environment. Although, Merck seemed to be proactive at times in responding to those changes, it could be more successful if keen on recommendations which are in line with the essence of Merck’s existence and corporate philosophy.

Merck was initially founded in 1668 in Darmstadt, Germany by Friedrich Jacob Merck where he previously operated as a pharmacy by selling morphine, cocaine, and codeine.[footnoteRef:4] It then became a manufacturer in 1827 by changing its name into E. Merck and then opened a sales office in 1887. Later a US branch under Merck and Company was opened and headed by George Merck in 1891 which had a rapid growth and established manufacturing facility in 1902 in Rahway, New Jersey.[footnoteRef:5] After the World War I, government confiscated Merck & Co and made it an independent unit whereas the German counterpart is now known as Merck KGaA. Merck has made its way through past pandemics where it was the first company to develop diphtheria antitoxin and smallpox vaccine in 1898.[footnoteRef:6] In 1953, Merck merged with Philadelphia pharmacy Sharpe & Dohme which became the largest pharma manufacturer of prescription drugs at that time.[footnoteRef:7] With a history of more than 125 years, today Merck operates in more than 140 countries with over 260 office locations including North and South America, Europe, Latin America and Asia. [4: Merck & Co. (2020). Merck Company History. Retrieved from: https://www.merck.com/company-overview/history/ ] [5: Merck & Co. (2020). Merck Company History. Retrieved from: https://www.merck.com/company-overview/history/] [6: Merck & Co. (2020). Merck Company History. Retrieved from: https://www.merck.com/company-overview/history/] [7: Merck & Co. (2020). Merck Company History. Retrieved from: https://www.merck.com/company-overview/history/]

Headquartered in Kenilworth, New Jersey, Merck & Co is not only a pioneer in manufacturing medicinal drugs but also a high valued and profound drug discovery and development institution across the globe. It is reported that Merck has approximately 71,000 employees as of December 31, 2019 of which nearly 26,000 employed in the United States including Puerto Rico. According to their corporate release, 30% of employees of Merck are part of collective bargaining groups globally. As part of their strategic move, Merck is also planning a major restructuring which could be in action by 2023. In February 2020, as part of their restructuring, Merck announced that it is planning to spin-off its Women’s Health, Legacy Brands and Biosimilars into a New Company, which is estimated to be concluded by first quarter of 2021.[footnoteRef:8] [8: Merck & Co. (n.d.). Merck 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/488056881/files/doc_financials/2019/q4/2019-Form-10-K-Final.pdf]

Merck & Co, conducts business through four main operating segments, had a total revenue of $46.8 billion in 2019 rising about 10.7% from that of 2018.[footnoteRef:9] Four segments include pharmaceutical, animal health, healthcare services and alliances where pharmaceutical is the major revenue generating segment. Pharmaceutical segment includes human health pharmaceutical and vaccines which are sold directly or by joint ventures. Alliances is the segment where Merck owns selling or part rights for the products which are discovered under partnership or licensing agreements, primarily includes its relationship with AstraZeneca LP. As a pure-science based firm, Merck generates all its revenues from developing and researching activities which makes it a stand-alone company in various fields of medicine. Merck’s drug portfolio ranges from providing therapeutic drugs in oncology, virology, vaccines, hospital acute care, neuroscience, immunology, cardiovascular, diabetes, women’s health, livestock medicines, animal health and companion animal products. Widely known drugs such as Keytruda, Januvia/Janumet, Gardasil/Gardasil 9, ProQuad/M-M-R II/Varivax, Bridion, Isentress/Isentress HD, Pneumovax 23, Zetia/Vytorin, Simponi and other companion and livestock drugs majorly contribute to the revenues of Merck.[footnoteRef:10] [9: Merck & Co. (n.d.). Merck 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/488056881/files/doc_financials/2019/q4/2019-Form-10-K-Final.pdf] [10: Merck & Co. (n.d.). Merck 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/488056881/files/doc_financials/2019/q4/2019-Form-10-K-Final.pdf]

Pharmaceutical industry is explicitly regulated which poses significant effect of any pharma company involved in business. Merck, in 2011, agreed to plead guilty by paying $321.6 million as criminal fine and $628.4 million in settling civil allegations against introducing a “misbranded” Voixx, a nonsteroidal anti-inflammatory drug treating arthritis.[footnoteRef:11] On the other hand, pharma industry is highly competitive and oligopolistic in nature posing a significant threat from rivalry. Pfizer, Roche, Novartis, Merck, GSK, Johnson & Johnson, AbbVie, Sanofi, Bristol-Myers Squibb, and AstraZeneca are the top ten pharmaceutical companies whose combined revenues were $392.5 billion, which is one-third of $1.3 trillion pharmaceutical revenues combined worldwide[footnoteRef:12]. Hereafter, Pfizer Inc and Johnson & Johnson (JNJ) will be considered as prime competitors for analyzing and determining effective industry practices as they are essentially American multinationals. [11: Loftus, P., & Kendall, B. (2011, November 23). Merck to Pay $950 million in Vioxx Settlement. Wall Street Journal. Retrieved from: http://online.wsj.com] [12: Top 10 pharma companies by revenues in 2019. (2020, March 4) https://www.beckershospitalreview.com/pharmacy/top-10-pharma-companies-by-revenue.html]

Daft summarized strategic intent as a medium where all the organization’s energies and resources are directed toward a focused, unifying, and compelling overall goal.[footnoteRef:13] Every organization exists for a purpose; identifying such purpose of existence decides their ultimate goal intending to design specific strategy in order to achieve their goal. It is an essential duty of the top management to define organizational mission, put forward vision in order to achieve goals and communicate the same across the organization. By doing so, it stretches out a clear path for an organization to operate in certain direction in order to achieve their overall organizational goals which made companies like Apple, Merck, Google, and many more succeed. [13: Daft, R.L., & Armstrong, A. (2015). Organization theory and design (3rd ed.). Toronto, ON: Nelson Education.]

Merck’s mission statement is “to discover, develop and provide innovative products and services that save and improve lives around the world.”[footnoteRef:14] Merck’s mission statement shows their intent of improving lives which sums up their journey since inception in the US in 1891. In 1950, George W. Merck said, "We try to remember that medicine is for the patient. We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear"[footnoteRef:15] indicating their business philosophy which is being followed even today. Having deep appreciation for better lives is the single point agenda communicated all over organization which works through achieving at every business action taken by Merck. [14: Merck & Co Mission, Vision & Values. (n.d.). Retrieved from: https://www.merck.com/company-overview/] [15: Merck & Co Company Overview. (n.d.). Retrieved from: https://www.merck.com/company-overview/history/]

Merck’s vision statement is “ to make a difference in the lives of people through our innovative medicines, vaccines, and animal health products. We are committed to being the premier, research-intensive biopharmaceutical company and are dedicated to providing leading innovations and solutions for today and the future”.[footnoteRef:16] Its vision statement specifies their commitment to uplift the lives across the world using their expertise in medical field by extensive research and development. Merck’s vision statement outlays how the company utilizes all its available strengths and resources for obtaining a competitive advantage while serving towards their mission. [16: Merck & Co Mission, Vision & Values. (n.d.). Retrieved from: https://www.merck.com/company-overview/]

Broadly, mission and vision in case of Merck are one: to save and improve lives, setting out their core values as patients, respect for people, ethics and integrity, and innovation and scientific excellence.[footnoteRef:17] They claim that having specific and transparent core values help them commit to and succeed in every action Merck takes as an organization. It helped them obtain product diversity in their research as well as developed pipelines as well as nurturing their relations with employees, patients, suppliers, distributors, investors, and other partners involved with the organization in global marketplace. [17: Merck & Co Mission, Vision & Values. (n.d.). Retrieved from: https://www.merck.com/company-overview/]

Daft suggests that companies devise their strategy in order to interact with the competitive external environment and achieve their organizational goals.[footnoteRef:18] Two such strategy devising frameworks according to Daft text are the Miles and Snow Typology and Michael Porter’s Five Forces. The Miles and Snow typology is based on the idea that managers seek to formulate strategies that will be congruent with the external environment.[footnoteRef:19] Miles and Snow framework suggests that organizations typically fall into any of these four categories: Prospector, Defender, Analyzer and Reactor depending on their strategy devised. Nevertheless, an organization is not constant in one category indicating that the transition between categories of Miles and Snow framework is highly possible marking the organization’s growth over its lifetime. Elite firms such as Amazon, Google, JNJ including Merck have been through different phases of growth since their inception, devising their strategies accordingly. [18: Daft, R.L., & Armstrong, A. (2015). Organization theory and design (3rd ed.). Toronto, ON: Nelson Education.] [19: Daft, R.L., & Armstrong, A. (2015). Organization theory and design (3rd ed.). Toronto, ON: Nelson Education.]

Merck, being a research-based pharmaceutical company, by nature, has always been a prospector. Merck is known to be ahead of game meaning constantly innovating, developing, and selling new drugs by obtaining patents. Merck initially grew by being very first synthesizer of vitamin B1 in 1936 contributing to reduction of vitamin B1 deficiency (beriberi) over years.[footnoteRef:20] It then was ahead by discovering and achieving breakthrough by making streptomycin to treat tuberculosis in 1940 and cortone (cortisone) for treating rheumatoid arthritis in 1950s.[footnoteRef:21] Moving ahead, if Merck stopped and relied only on revenues from its previously discovered rugs, it would have been off the competition similar to some of those firms in the same era. [20: Merck & Co Company Overview. (n.d.). Retrieved from: https://www.merck.com/company-overview/history/] [21: Merck & Co Company Overview. (n.d.). Retrieved from: https://www.merck.com/company-overview/history/]

Merck, due to its expansion by catering to various disease curing drugs across global markets, has realized profits worldwide which makes it a defender; in other words, Miles and Snow describe that when the organization stays steady at its current growth neither seeking for new things nor any further growth making it a defender. Thus, Merck acts as a defender when it is realizing profits from its current drug portfolio and holding itself back from any further exploration. However, Merck including Pfizer, JNJ or any other big pharma will have inevitable setbacks due to loss of patent exclusivity (LOE) call for ways to look out in generating alternative revenues. Under such instances, Merck again goes back to rely on discovering and developing new drugs using its expertise and experience in various markets given all the years of market presence acting as an Analyzer.

Any mature organization along with its expertise and experience over years has a definite ability of analyzing upcoming trends including healthcare sector making them act as prospector while developing new drugs and as a defender while gaining profits from previously discovered drugs. Hence, looking at the ongoing journey of Merck with vast mergers and acquisitions, licensing agreements, growing market presence and their vast spending on R&D, Merck can be categorized as an analyzer. Lastly, reactor category under the Miles and Snow typology is where firms cease to take risk and lack an ability of foreseeing future have no specific strategy aiming for growth, instead they lay back and react to changes and then reorganize accordingly. Merck, due to its performance and nature of operating industry seizes to fit in such a reactor category.

Not only Merck but also firms like Pfizer, JNJ, AbbVie, Sanofi, Roche, GSK, and many more are some of the major blockbuster drug companies across the globe. Having said that, Merck stands out the list due to its exception investment on R&D (nearly, $9.9 billion in 2019)[footnoteRef:22] with breakthroughs in oncology and cardiology. Keytruda, an immune-boosting cancer treatment by Merck has given almost $2.6 billion only in first quarter of 2019[footnoteRef:23], showing its ability of developing breakthroughs in fields of medicine with constant creation. All in all, it is clear that Merck in order to sustain its valuable big pharma position in the world pharma sector, has to continuously strive in discovering and developing new drugs and therapies opening new windows for growth and profits. Purely relying on research and developments as it does not have any generic drugs division, Merck best fits into prospector category according to the Miles and Snow typology driving high growth by new drug development initiatives. [22: Merck & Co. (n.d.). Merck 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/488056881/files/doc_financials/2019/q4/2019-Form-10-K-Final.pdf] [23: Nisen, M. (2019, July 30). Merck Has a Problem Every Drugmaker Wishes It Had. Bloomberg. Retrieved from: https://www.bloomberg.com/opinion/articles/2019-07-30/merck-s-keytruda-success-gives-it-time-to-find-next-blockbuster]

As aforementioned, second approach for devising a strategy mentioned in the Daft text was Michael Porter’s competitive business strategies which are categorized mainly into three: cost leadership (both low cost & best value), differentiation, and focus (both low cost & best value).[footnoteRef:24]Cost leadership emphasizes on the relationship between volume and profit implying that lowering sales price boosts volume sold thereby increasing revenues. While the focus strategy is about developing products or services catering to needs of specific clan of customers or a niche market needs. On the other hand, differentiation is an optimistic way of combining both focus and cost leadership techniques where companies cater to different products while penetrating to new markets aiming at satisfying needs of different customers in the same market resulting growth in overall revenues. [24: Daft, R.L., & Armstrong, A. (2015). Organization theory and design (3rd ed.). Toronto, ON: Nelson Education.]

As a global company, Merck uses cost leadership, differentiation and focus categories while devising its operational strategies depending upon the circumstances whether penetrating to new markets or discovering and developing new drugs through intensive R&D. Using both differentiation and focus strategies, Merck has been relentlessly growing by increasing market share and boosting revenues over years since 1950s. Merck has used cost leadership in manufacturing biosimilars, which is now going to be the part of progressive spinoff called as Organon & Co. Merck is positive about its progressive spinoff of Organon & Co., which includes women’s health, trusted legacy brands and biosimilars business expecting to finish it by first half of 2021.[footnoteRef:25]Looking at Merck’s future organizational plans, it can be noted that Merck is preaching the value of focus as it is spinning off its diversified portfolio by shaping into purely science based company. By its aggressive growth nature, Merck had acquired various firms such as Cubist Pharmaceuticals in 2015 for $8.4 billion,[footnoteRef:26] Idenix Pharmaceuticals for $3.85 billion in 2014[footnoteRef:27] and Themis in 2020 ahead of SARS Covid-19 vaccine development[footnoteRef:28] shows its growing nature by differentiating approach as these companies had expertise in different fields of medicine resulting in increase of profits from its vast global presence. Looking at the history and current market performance, Merck has always been a leader by relying heavily on developing new drugs through intensive and focused R&D beginning from their fast paced vitamin B1 synthesis, streptomycin to discovery of blockbuster drugs such as Keytruda, Clarinex, Januvia and so on. [25: Merck & Co. (2020). Merck Q1 10-Q filings. Retrieved from: https://s21.q4cdn.com/488056881/files/doc_financials/2020/q1/updated/MRK-1Q20-Earnings-Deck-(1).pdf] [26: Merck & Co. (n.d.). Merck 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/488056881/files/doc_financials/2019/q4/2019-Form-10-K-Final.pdf] [27: Merck & Co. (n.d.). Merck 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/488056881/files/doc_financials/2019/q4/2019-Form-10-K-Final.pdf] [28: Merck & Co. (2020, June 19). Merck Completes Acquisition of Themis. Retrieved from: https://www.merck.com/news/merck-completes-acquisition-of-themis]

On the other hand, global companies such as GSK, Pfizer, JNJ, Bristol-Myers Squibb, Roche, Sanofi, and many more who are prime competitors of Merck have also been competitively succeeding due to their reliance on R&D similar to that of Merck. By due nature of pharmaceutical industry, they practice a regular process of developing new drugs. However, every company have their own niche markets as they serve specific types of diseases globally with their own patented drugs as well as compete intensively in generic drug markets. Thus, in order for Merck to survive, it has to use differentiation strategy very aggressively to maintain the competitive position in the world pharma sector. Keytruda is expected to have around $14 billion in 2020 alone which could drive Merck to the top pharma organization in 2020 according to various analysts.[footnoteRef:29] Keytruda has also received its approval in EU which will also add to its blockbuster revenues making it an outstanding firm in 2020 in addition to 55% worldwide growth alone in 2019.[footnoteRef:30] Over past 50 years or more, cardio-metabolic diseases and vaccines have been driving forces allowing Merck to continuously experiment in such wider branches of medicine giving vast scope of growth drawing a competitive advantage in the market. [29: Nathan-Kazis, J. (2020, July 31). Merck Stock Climbs on Earnings Beat as Keytruda Sales Jump. Barrons. Retrieved from: https://www.barrons.com/articles/merck-stock-earnings-beat-keytruda-sales-jump-51596203089] [30: Merck & Co. (n.d.). Merck 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/488056881/files/doc_financials/2019/q4/2019-Form-10-K-Final.pdf]

Effectiveness of any company or efficacy of a business plan is measured using the specific outcome of the goals and objectives set by the organization aiming its own growth and development as summarized by Daft.[footnoteRef:31]Top managers or investors measure the goal achievement of an organization in terms of revenues generated, which in case of Merck has been quite successful over years with $39.98 billion in 2017 (1.23% increase), $42.3 billion in 2018 (nearly 5% increase) and $46.8 billion in 2019 (with an increase about 10.7%) annual revenues.[footnoteRef:32] According to their corporate sustainability report, Merck aims to have environmentally sustainable packing initiatives of which about 66% are already achieved.[footnoteRef:33] All their active pharmaceutical ingredient (API) suppliers by 2020 are also aimed at being environmentally sustainable operations[footnoteRef:34] including their pharmaceutical health segment being effective on water usage according to their corporate releases. [31: Daft, R.L., & Armstrong, A. (2015). Organization theory and design (3rd ed.). Toronto, ON: Nelson Education.] [32: Merck & Co. (n.d.). Merck 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/488056881/files/doc_financials/2019/q4/2019-Form-10-K-Final.pdf] [33: Merck & Co. (n.d.). Retrieved from: https://www.msd.com/company-overview/policies-and-positions/] [34: Merck & Co. (n.d.). Retrieved from: https://www.msd.com/company-overview/policies-and-positions/]

As part of their long-term sustainability, Merck has set out policies in line with their goals for achieving through their operations with four basic underlying elements: access and affordability, innovation, public health, and transparency and responsible behavior. Having set aforesaid objectives in line with their goals accomplishment in above four areas allows Merck to stand out and succeed in global marketplace through improving lives across the globe. Merck’s investment on digital transformation is also taking Merck to next level where it can expedite its drug discovery and research process enabling to strengthen its research pipeline unleashing new potentials for growth. Their vast spending on R&D over years such as nearly $10.2 billion in 2017, $9.8 billion in 2018 and $9.9 billion in 2019 [footnoteRef:35]depicts their explicit reliance on research and quest for developing new drugs. Their growth curve since past five years shows that Merck has been incredibly meeting its goals specially in terms of R&D with over 90 discoveries with many of those aiming for multiple disease usage.[footnoteRef:36] Merck aiming at restructuring after progressive spinoff of Organon & Co by first half of 2021[footnoteRef:37] is aiming at turning itself into a pure science-based company to grow into a vast research focused and larger scale pharma company in the world. [35: Merck & Co. (n.d.). Merck 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/488056881/files/doc_financials/2019/q4/2019-Form-10-K-Final.pdf] [36: Merck & Co. (n.d.). Merck 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/488056881/files/doc_financials/2019/q4/2019-Form-10-K-Final.pdf] [37: Merck & Co. (2020). Merck Q1 10-Q filings. Retrieved from: https://s21.q4cdn.com/488056881/files/doc_financials/2020/q1/updated/MRK-1Q20-Earnings-Deck-(1).pdf ]

According to Daft, organizational structure has three basic components which are identifying and allocating groups of individuals into departments, designating formal relationships and includes designing a system for an effective communication, coordination, and integration among all the business activities of an organization.[footnoteRef:38] Thus, not only having a strategic plan with set of objectives but also having an effective organizational structure for implementing necessary plans is equally essential for any organization. Daft has explained various types such as functional, divisional, and geographical structures which are used by many elite companies across the world. Merck operating in more than 250 world locations, has organized its commercial activities using matrix structure for effective domestic and international operations as it needs both vertical and horizontal coordination for overall organizational efficacy. [38: Daft, R.L., & Armstrong, A. (2015). Organization theory and design (3rd ed.). Toronto, ON: Nelson Education.]

Before the acquisition of Schering-Plough in 2009, Merck used to commercially operate in two divisions: Pharmaceutical products, and Vaccines and Infectious diseases.[footnoteRef:39] With the successful acquisition post 2010, Merck began operating in three major divisions until fiscal 2014: Pharmaceutical, Animal Health and Alliances segments of which only Pharmaceutical segment is reportable. Merck’s pharmaceutical segment also until October 1, 2014 was inclusive of consumer business unit that developed, manufactured, and marketed over-the-counter, foot care and sun care products.[footnoteRef:40] Having such vast variety of drugs in its basket along with international operations, Merck had always been keen on restructuring in line with their portfolio matching market requirements. After divesting their consumer business on October 1, 2014, Merck’s operations are principally managed on a products basis and are comprised of four operating segments: the Pharmaceutical, Animal Health, Alliances, and Healthcare Services segments since fiscal 2015.[footnoteRef:41] As previously mentioned, Merck is prospective about spinning off their women’s healthcare products, biologics and trusted legacy brands by first half of 2021 into a new company called as Organon & Co[footnoteRef:42] also shows their commitment towards being a purely focused science based organization. Their latest restructuring happened in fiscal 2015 showing that since then their operations are effective and supporting their organizational strategy according to their 2016 annual filings.[footnoteRef:43] It unleashes their focus on extensive research and turning into a pure science-based firm reinstating its global position. All the manufacturing of various business segments is headed by a single top manager, along with the teams spread across all the continents exhibiting the coordination and balance between functional and product matrix. [39: Merck & Co. (n.d.). Merck 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/488056881/files/doc_financials/2019/q4/2019-Form-10-K-Final.pdf] [40: Merck & Co. (n.d.). Merck 2014 Annual Review. Retrieved from: http://s21.q4cdn.com/488056881/files/doc_financials/2014/q4/MERCK_2014_Form_10_K_FINAL_022715.pdf] [41: Merck & Co. (n.d.). Merck 2015 Annual Review. Retrieved from: https://s21.q4cdn.com/488056881/files/doc_financials/2015/annual/MRK_2015_Form_10-K_FINAL_r879.pdf ] [42: Merck & Co. (n.d.). Merck 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/488056881/files/doc_financials/2019/q4/2019-Form-10-K-Final.pdf] [43: Merck & Co. (n.d.) Merck 2016 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReportArchive/m/NYSE_MRK_2016.pdf]

Merck over years has been successful in having effective corporate governance in place by implying transparency and value creation as their main values for organizational growth. Hierarchically, it has two basic layers: board of directors and senior executive team after which information flow and sharing is horizontal, vertical, and cross-functional enabling an integrated and connected ecosystem among all the employees. Kenneth C. Frazier, who has been serving as the chairman of the board and as the CEO since December 2011, substantially increased Merck’s spending on R&D over years.[footnoteRef:44] Board members form an integral part of strategic decision-making overseeing all the commercial activities while creating value for their shareholders. There are four committees reporting to the board ensuring proper functioning of the internal processes and reporting designed by the executive team: audit, governance, compensation and benefits, and research committees.[footnoteRef:45] Each of these four committees are led by a leader who ensures their team’s alignment with the by-laws designed and conduct polices. Audit committee checks Merck’s operations through the SEC regulations ensuring the correctness and reliability of their reporting which otherwise is a liable offence. Governance committee discharges duty of evaluating executives and employees’ ability of aligning with laid out company policies while discharging one’s own duty towards company growth. Compensation and benefits committee is solely responsible for allocating performance with incentives and providing extra benefits to the executives depending on the past year’s achievement and forward-looking initiatives. Lastly, research committee ensures transparency avoiding complacency and expedited discovery without safety only for making money. [44: Merck & Co. (n.d.). Company Leadership. Retrieved from: https://www.merck.com/company-overview/leadership/executive-team/] [45: Merck & Co. (n.d.). Company Leadership. Retrieved from: https://www.merck.com/company-overview/leadership/board-of-directors/]

Figure 1: Matrix structure of Merck & Co[footnoteRef:46] [46: Merck & Co. (n.d.). Company Overview. Retrieved from: https://www.merck.com/company-overview/]

Hierarchy, code of conduct, corporate governance, and internal control are the major attributes of an organizational structure directing decision-making and internal processes by evaluating the effectiveness of the organization. While board of directors’ main purpose lies in creating a value for shareholders through business activities, Merck is known for having a wide range and experienced executive team of 11 members who are known to be one of the most effective industry leaders in the pharma sector. Merck’s restructuring policies have been always in line with their strategic initiatives resulting in positive outcomes boosting their global presence. Since fiscal 2016, having such widespread portfolio of products, their matrix structure contributed in their effective functioning over years.[footnoteRef:47] Merck seems to have consistently restructured its operating divisions timely, which made them to spread out under correct leadership and support from both executive team and the board. Therefore, with its robust product portfolio and integrated matrix structure, Merck is efficient in executing its strategic plan boosting its overall performance and increasing market share operating in a complex and extremely regulated industry. [47: Merck & Co. (n.d.) Merck 2016 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReportArchive/m/NYSE_MRK_2016.pdf]

In other words, macro environment in today’s world has significant impact on global businesses irrespective of home country of the business. Daft defined organizational environment as all the factors which are external to the organization impacting directly or indirectly the part or whole of an organization which could be short term or long term.[footnoteRef:48] Any external change will have a repercussive effect on organization’s operation as well as on its products, services and policies. There are ten elements to be considered in external environment according to Daft in order to understand an organization such as: industry, raw materials, human resources, finance, economic conditions, market, technology, socio-cultural conditions, government, and international environment.[footnoteRef:49] Following section explicates how these external elements are impacting pharmaceutical industry on a broader context with an explicit focus on Merck & Co. [48: Daft, R.L., & Armstrong, A. (2015). Organization theory and design (3rd ed.). Toronto, ON: Nelson Education.] [49: Daft, R.L., & Armstrong, A. (2015). Organization theory and design (3rd ed.). Toronto, ON: Nelson Education.]

Pharmaceutical industry is one of the most competitive and highly regulated industries involving advanced research and development needing excess capital and resources. Drug discovery and development is an arduous and risky task involving many years of research and exploration with unpredictable end results. Pharma sector is under constant pressure to discover new drugs and therapies for creating breakthroughs in patients’ lives. It is estimated that about $190 billion dollars were spent in 2019 by pharma companies across globe towards R&D. While such aggressive research and development is taking place, anti-microbial resistance (AMR) is driving a major setback for all the companies. According to a report by the National Health Institute, the CDC estimated that the cost of antimicrobial resistance is $55 billion every year in the United States, $20 billion for health care and about $35 billion for loss of productivity.[footnoteRef:50] Such a loss of estimated $55 billion is a burden of economy and various studies have also showed the impact of AMR in Europe, Asia, Latin America and Oceanian nations.[footnoteRef:51] Governments across the globe are constantly pressurizing pharma companies to conduct research for fighting superbugs and control of pharmaceutical pollution. Regulations and various signed treaties such as the Davos Declaration of various drug makers and AMR Action Fund recently in 2020 are some of the initiatives taken by both public authorities and private pharma tycoons to control the impact of AMR. The UN and WHO are also partners of the Davos Declaration and the AMR Action Fund initiatives thriving for sustainability as the noble cause. Merck being a leader in developing vaccines since its founding, is also committed to fight against the AMR repercussions, it set out new strategies by signing various global initiatives and conducting partnered research through AMR Action Fund showing its stewardship against AMR,[footnoteRef:52] creating a sustainable advantage among its major competitors. [50: Dadgostar P. (2019). Antimicrobial Resistance: Implications and Costs. Infection and drug resistance, 12, 3903–3910. https://doi.org/10.2147/IDR.S234610] [51: Chen, H. H., Stringer, A., Eguale, T., Rao, G. G., & Ozawa, S. (2019). Impact of antibiotic resistance on treatment of pneumococcal disease in Ethiopia: an agent-based modeling simulation. The American journal of tropical medicine and hygiene, 101(5), 1042-1053.] [52: Merck & Co. (2019, October 1). Working together to create a sustainable market for antibiotics. Retrieved from: https://www.merck.com/stories/working-together-to-create-a-sustainable-market-for-antibiotics/]

Merck is known to be an aggressive player reinforcing its research abilities by discovering mumps-measles vaccine commercially in 20th century acquiring most of the market. Its strategy over years has been expansion by mergers and acquiring various research-based firms. Merck has not only been a pioneer in the US market but also in international markets by acquisitions. Some of the major mergers Merck has involved itself were Sharp & Dohme in 1953[footnoteRef:53]; merging with Schering-Plough in 2009 and acquiring all its products for $41 billion in 2009 whose allergy drugs such as Claritin and Clarinex, anti-cholesterol drug Vytorin and Temador for brain tumor are some of the blockbuster drugs in the history of Merck,[footnoteRef:54] also a recent acquisition of Themis depict the growth and outreach of Merck drugs worldwide. Pharma sector accounts for about 20% of the US GDP underlying a fact that any change in the industry poses a vital change in the economy of the US and vice versa. Merck today is taking a different approach as in it is planning to restructure itself into a pure-science based organization with its planned spinoff of Organon & Co., by separating its women healthcare and biosimilars division by first half of 2021.[footnoteRef:55] With a wider portfolio of research and development in place along with sophisticated drugs and therapies in its pipeline for FDA approval, Merck is possessing advantage over its competitors. Having said that, peers such as JNJ, Pfizer, GSK, Roche, and other global players also have very rich corporate philosophy and quest of creating breakthrough medicines, which in turn boosts Merck to constantly seek opportunities for development in order to stay up the competition in the industry. [53: Galambos, L., & Sewell, J. E. (1997). Networks of Innovation: Vaccine Development at Merck, Sharp and Dohme, and Mulford, 1895-1995. Cambridge University Press.] [54: Merck & Co. (n.d.) Merck 2016 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReportArchive/m/NYSE_MRK_2016.pdf] [55: Merck & Co. (n.d.). Merck 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/488056881/files/doc_financials/2019/q4/2019-Form-10-K-Final.pdf ]

Pharma industry being spread out across four corners of the world, needs an efficient system of supply chain in order to produce and deliver medicines to the global population as and when needed. Merck being one of the dominant global pharmaceutical organization, involve itself from discovering, developing, manufacturing, marketing, and selling drugs and therapies to patients both in the US and international locations. Such a widespread base of operations involves many and diversified suppliers which on whole builds a sophisticated and complex supply chain. Merck has therefore put forward stringent constraints for its supplier and distributing partners as well as for its subsidiaries as drug companies should be very efficient in forecasting, producing, and delivering drugs on time. Merck has mandated its supplier partners to abide by the norms set by the US Food and Drug Manufacturing (FDA) and US Current Good Manufacturing Practices (CGMPs) by FDA ensuring quality of raw materials.[footnoteRef:56] [56: United States Food and Drug Administration. (n.d.). Guidance and Manuals on Pharmaceutical Quality. Retrieved from https://www.fda.gov/drugs/pharmaceutical-quality-resources/guidances-and-manuals-pharmaceutical-quality]

Either branded or generic drug, both need main component called as Active Pharmaceutical Ingredient (APIs) which are then converted into consumable form by further formulation served as final dosage form (FDFs). Any pharma company can sell their drugs either as prescribed drugs (branded or generic) or as the over-the-counter (OTC) drugs. Merck being incorporated in the US can sell through its distribution channels either as prescribed or OTC drugs, which for major part sells all of its drugs as prescribed after October 1, 2014 after spinning off their consumer products division. Having such norms in place makes Merck to actively seek suppliers who have an ability to abide those rules by providing raw materials efficiently both in terms of quality and quantity. It further restricts firm’s ability to direct raw material suppliers wholly to act according to only one’s interest thus inducing healthy competition in the system. Aspects such as forecasting, producing, accessibility, access, and pricing to resources also govern companies to choose their supplier partners as in case of Merck.

Creating economic empowerment through diversity & inclusion is Merck’s policy behind any of their potential suppliers. Pharmaceutical supply chain (PSC) is one of the most complex and constantly evolving in the industry because medicines are needed whose usage is quite unpredictable. The NIH study shows that inaccuracy in forecasting, long lead times, lack of optimum target inventory, and high SC costs are the most important PSC problems.[footnoteRef:57] It is estimated that about 13% of APIs for the US come from China, India supplies about 18% of APIs while European Union supplies 26% and the US itself has about 28% API producers.[footnoteRef:58] There has always been an ongoing discussion on supply chain restructuring for the pharma industry in the US as well as other nations such as EU. Thus, Merck in order to stay up the game has to be an efficient manager of its raw materials as it draws a major share of raw materials from Asia and Europe. Leveraging science to create supply chain solutions, transforming molecules to make it available to millions, collaborating to modernize glass packaging, establishing environment friendly manufacturing sites are some of the initiatives taken by Merck to maximize profits from existing supply chain by achieving its goals.[footnoteRef:59] Having such an advantage of early on investments in future and disruptive technologies and fairly strong supply chains shall allow Merck to rise and achieve its development goals. [57: Moosivand, A., Rajabzadeh Ghatari, A., & Rasekh, H. R. (2019). Supply Chain Challenges in Pharmaceutical Manufacturing Companies: Using Qualitative System Dynamics Methodology. Iranian journal of pharmaceutical research : IJPR, 18(2), 1103–1116. https://doi.org/10.22037/ijpr.2019.2389] [58: United States Food and Drug Administration. (n.d.). Guidance and Manuals on Pharmaceutical Quality. Retrieved from https://www.fda.gov/drugs/pharmaceutical-quality-resources/guidances-and-manuals-pharmaceutical-quality] [59: Merck & Co. (n.d.). Suppliers. Retrieved from: https://www.merck.com/company-overview/suppliers/]

Merck has stringent policies in place in order to meet its employees’ materialistic needs so as to deliver reliable medicines on time to patients globally. Merck is committed strongly to the wellbeing of its employees which is also one of their five core values.[footnoteRef:60] In the US, Merck is a registered federal lobbyist committing itself to develop and deliver drugs for betterment of patients’ lives by suggesting on pricing and ways to improve public health.[footnoteRef:61] Many of the Merck’s initiatives such as their global engagement policies, trade agreement policies, supplier and distributing contracts as well as their federal and state lobbying disclosures display their work ethic along with public, doctors and governments facilitating healthcare. [60: Merck & Co Mission, Vision & Values. (n.d.). Retrieved from: https://www.merck.com/company-overview/] [61: Scutti, S. (2019, January 24). Big Pharma spends record millions on lobbying amid pressure to lower drug prices. CNN. Retrieved from: https://www.cnn.com/2019/01/23/health/phrma-lobbying-costs-bn/index.html]

Merck is also widely known for its Merck Manual (a drug manual which discusses various medications, drugs and their effects which was started by George Merck in 20th century) continuing till today as well as Merck’s code of conduct manual.[footnoteRef:62] Their values and standards handbook aimed mainly at people, one of their four core values of existence. Merck’s people include their suppliers, employees, shareholders, customers, and their communities and society. Having good workforce is a valuable asset for any organization in order to succeed in the market against its competitors including pharma business. R&D shall only add if the R&D employees are highly reliable and critical on their findings and procedures which brings the advantage of success in delivering breakthrough drugs and therapies. Skilled workforce is the only driver of both R&D and manufacturing facilitating delivery of drugs on time in addition to pharma companies’ extra investment on advanced technologies. [62: Merck & Co. (2015). Our Values and Standards – The Basis of our Success. Retrieved from: https://www.msdresponsibility.com/wp-content/uploads/2015/08/code_of_conduct.pdf]

Moreover, compensation packages, employee satisfaction and work environment are some of the basic factors that govern people’s commitment to their organization. Thus, having effective compensation and executive committees enforces all policies correctly there by providing a positive workplace for change making employees. Merck holds a widely recognized position in all such employee related factors as it was rated as the best place to work by the 83% of its employees in 2019 according to a survey.[footnoteRef:63] Merck insists its employees to seek new challenges depending on their interests rather than position requirements which boost employees’ morale to work more and develop their skills. Such practices over years have infused a strong organizational culture increasing their productivity, which is one of the best ways of treating employees suggested by various management scholars.[footnoteRef:64] [63: Muse, L. A. (2011). Flexibility implementation to a global workforce: a case study of Merck and Company, Inc. Community, Work & Family, 14(2), 249-256.] [64: Seppala, E & Cameron, K. (2015). Proof that Positive Work Cultures are More Productive. Harvard Business Review, 85(8).]

With the enactment of Tax Cuts and Jobs Act (TCJA) in 2017 by the US where corporate taxes were reduced 35% to 21%, Merck recorded a provisional amount for its one-time transition tax liability of $5.3 billion in 2017.[footnoteRef:65] Merck paid $4.5 billion, $1.5 billion and $4.9 billion, in income taxes paid for years 2019, 2018 and 2017 respectively.[footnoteRef:66] Merck reported revenues of about $40.3 billion, $42.3 billion and $ 46.9 billion in 2017, 2018 and 2019 years respectively[footnoteRef:67] which show the unlikely impact of foreign currency exchange rates as well as one-time tax liabilities to be fulfilled in both the US and other global locations. In Japan, the pharmaceutical industry is subject to government-mandated biennial price reductions of pharmaceutical products and certain vaccines, which occurred in 2018.[footnoteRef:68] In addition to industry-specific hindrance, Merck is also succumbed to the federal government pressure of not increasing drug prices more than 10% yearly has taken a hard hit on revenues of Merck.[footnoteRef:69] [65: Merck & Co. (n.d.). Merck 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/488056881/files/doc_financials/2019/q4/2019-Form-10-K-Final.pdf] [66: Merck & Co. (n.d.). Merck 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/488056881/files/doc_financials/2019/q4/2019-Form-10-K-Final.pdf] [67: Merck & Co. (n.d.). Merck 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/488056881/files/doc_financials/2019/q4/2019-Form-10-K-Final.pdf] [68: Merck & Co. (n.d.). Merck 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/488056881/files/doc_financials/2019/q4/2019-Form-10-K-Final.pdf] [69: Financial Post. (2020, January 03). Novartis, Merck, and Allergan join those raising U.S. drug prices for 2020. The Financial Post. Retrieved from: https://financialpost.com/pmn/business-pmn/novartis-merck-and-allergan-join-those-raising-u-s-drug-prices-for-2020]

Trump’s administration ahead of 2020 elections is taking a tough toll on drug pricing in the US as well as governments such as in Japan, China and EU are constantly pressurizing pharma companies to reduce price ahead of selling in respective countries. US government being their major consumer, Merck had to reduce their certain drug prices such as M-M-R-II, Varivax, ProQuad and many more in order to boost their sales volume in the US.[footnoteRef:70] Due to increasing competition against biosimilars and women’s healthcare, Merck has strategized itself to turn into a pure science and research based company by planning their spinoff of Organon & Co. Despite certain setbacks, Merck still realizes blockbuster revenues from products such as Keytruda, Clarninex, Gardasil/Gardasil 9, Pneumovax, Emend and Lynparza.[footnoteRef:71] Nevertheless, of growing generic competition, Merck has secured its market by seeking about ten drug approvals by 2019 and almost fifteen major drugs under phase 3 of clinical trials awaiting final FDA approval. Having such an intensive R&D in pace along with number of licensing agreements, Merck has already planned a major turnout for coming years. All in all, it shows that Merck is clear on building up counteractive strategies to fight off generic competition for its near expiring drugs and operating for long term sustainability. [70: Merck & Co. (n.d.). Merck 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/488056881/files/doc_financials/2019/q4/2019-Form-10-K-Final.pdf] [71: Merck & Co. (n.d.). Merck 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/488056881/files/doc_financials/2019/q4/2019-Form-10-K-Final.pdf]

Drugs are an essential need for world population making global markets highly needy and competitive in nature for pharmaceutical companies. Merck operating in more than 140 world countries with about 270 global locations,[footnoteRef:72] supplying wide variety of drugs in both human and animal health sectors gained international revenues of about 56.6% in 2019, 56% in 2018 and 56.5% in 2017 out of total revenues in corresponding years.[footnoteRef:73] Merck has about 144 external manufacturing sites including the US and global plants, 35 corporate alliances and 98 regional alliances providing access to their products.[footnoteRef:74] With such an explicit market presence and accessibility across the globe, Merck has a definite demand for its products. Having said that, due to its vast presence along with various global trade and drug usage restrictions involved, Merck has an inevitable repercussion due to any changes in the market which could be due to regulations or public health or drug quality. Merck’s main customers include government health agencies, health management firms, employee agencies, benefit management firms, hospitals, doctors, pharmacies, and direct consumers in case of the US. Thus, any regulatory changes to the customers also have an impact on operations and drugs manufactured by the Merck. Merck until October 01, 2014 had consumer business division selling OTCs which was later divested, also had about $78 million in amounts of 2019 related to that divesture.[footnoteRef:75] It can be concluded that the operations of Merck are exposed to significant threat from both domestic and international markets. [72: Merck & Co. (n.d.). Manufacturing and Supply. Retrieved from: https://www.msdresponsibility.com/access-to-health/manufacturing-supply-chain/] [73: Merck & Co. (n.d.). Merck 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/488056881/files/doc_financials/2019/q4/2019-Form-10-K-Final.pdf] [74: Merck & Co. (n.d.). Manufacturing and Supply. Retrieved from: https://www.msdresponsibility.com/access-to-health/manufacturing-supply-chain/] [75: Merck & Co. (n.d.). Merck 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/488056881/files/doc_financials/2019/q4/2019-Form-10-K-Final.pdf]

As a robust pharma organization, Merck uses advanced technology to discover, develop, produce, and deliver medicines in the lucrative drug industry. Merck manufactures chemical drugs, biologic drugs, vaccines veterinary drugs and vaccines all of needing sophisticated manufacturing equipment involving high tech. Merck’s worldwide research and development division known as Merck Research Laboratories, operates and collaborate within some of the leading bio-pharma ecosystems including the San Francisco Bay area, California; Boston/Cambridge, Massachusetts; New Jersey; Pennsylvania and Canada.[footnoteRef:76] Aforementioned R&D centers conduct R&D for all the segments of Merck including human and animal health. Their main areas of research include oncology, vaccines, infectious diseases, cardio-metabolic disorders, and neuroscience along with intensive discovery and development programs.[footnoteRef:77] In order to expedite their research processes as well as to boost their developing and manufacturing processes, Merck uses various advanced technological platforms as part of their digitalization objective discussed below: [76: Merck & Co. (n.d.). Research and Products. Retrieved from: https://www.merck.com/research-and-products/] [77: Merck & Co. (n.d.). Research and Products. Retrieved from: https://www.merck.com/research-and-products/]

1. Digital transformation resulting production expedition and effective process development

Digital transformation provides manufacturing companies with broader success as it provides accuracy in forecasting and expedited manufacturing and quality control processes. While manufacturing APIs or FDFs, it is mandatory to quality check and valuate the results at every stage of production which is also a necessary requirement according to the FDA norms. Previously, at every stage samples were collected and manually tested whose results were calibrated in the excel spreadsheets. That is a tedious process as it should be done for every product at every stage as part of the production process. Every departmental data is in a way siloed which prevents data engineers or scientists to compare and provide an analysis with the broken data. Thus, Merck has decided to transform their top three products manufacturing process digitally so as to produce more resulting larger revenues. In a recent presentation 2019, Dr. Eugene Tung, Executive Director, Manufacturing IT, and digital transformation co-leader at the $7 billion Vaccine Business Unit at Merck & Co. described how and why Merck is investing in digital transformation.[footnoteRef:78] They estimated about $1 billion in savings of which $500 million[footnoteRef:79] are directly coming from the manufacturing, initially found four areas for transforming: Product data management, predictive condition monitoring, technology-enabled laboratories, steam trap monitoring and open standards. [footnoteRef:80]As manufacturing involves many rotating parts and turbines whose constant monitoring is required or else has a significant impact on product availability and revenues, thus, having advanced tech base manufacturing setup certainly gives Merck at advantage of succeeding the market. [78: Abel, J. (2019, June 27). Digital Transformation at Merck Pharmaceuticals. ARC Advisory Group. https://www.arcweb.com/blog/digital-transformation-merck-pharmaceuticals] [79: Abel, J. (2019, June 27). Digital Transformation at Merck Pharmaceuticals. ARC Advisory Group. https://www.arcweb.com/blog/digital-transformation-merck-pharmaceuticals] [80: Abel, J. (2019, June 27). Digital Transformation at Merck Pharmaceuticals. ARC Advisory Group. https://www.arcweb.com/blog/digital-transformation-merck-pharmaceuticals]

2. Innovation in the life sciences with the 3D printing technology

Marc Durante, associate director of Merck’s IT Regional Workplace Services explains how Merck’s 3D technologies are evolving to become top solutions for innovations in life sciences. Merck had its first 3D tech workspace recently in 2014 when Marc was supported by then senior IT president with proof of concept of having 3D in house.[footnoteRef:81] Today Merck’s 3D tech research centers are main stations for prototyping cells and conducting experiments for manufacturing hard-to-find manufacturing parts. Merck now has four established and actively working 3D printing locations globally in New Jersey, Singapore, Pennsylvania, and Ireland with an ongoing fifth unit in Latin America along with 1500 projects of 3D and two patents.[footnoteRef:82] Having such an advanced workspace is positioning Merck in forefront of innovating various molecules and manufacturing processes which in future facilitates their revenue increase by expedited research and delivery. Using 3D printing, Merck is also using other data analytics platforms to understand the life cycle and patterns of various pathogens, which then stimulates their research and drug findings. [81: Merck & Co. (2020, June 25). Innovation: If you build it (in 3D), they will come. Retrieved from: https://www.merck.com/stories/if-you-build-it-in-3d-it-will-come/ ] [82: Merck & Co. (2020, June 25). Innovation: If you build it (in 3D), they will come. Retrieved from: https://www.merck.com/stories/if-you-build-it-in-3d-it-will-come/ ]

3. Global health innovation (GHI) fund for explicit R&D

An independently operating firm under Merck, looks at potential technology innovators in healthcare segment where they develop cutting edge technologies in order to serving the global population with main focus on North America and Europe.[footnoteRef:83] It is a way Merck brings in the venture capitalists to value creation by using their expertise in given areas of medical science or real time data collection and segregation. It attracts investors from global platforms with an access to needing expertise from across all the 140 operating nations by Merck and allocating necessary talent as and when needed. GHI typically invests with six main areas as focus: Therapy Planning, Care Management, eClinical Trials, Health Analytics and AI, and Enabling Technologies. [footnoteRef:84]By investing in such technologically advanced firms, Merck has an outright approach to obtain sustainability using its expertise in developing vaccines as well as drugs in various areas of medical science. [83: Merck & co. (n.d.). Global Health Innovation Fund: Leadership in Digital Health Investing. Retrieved from: http://www.merckghifund.com/] [84: Merck & Co. (n.d.). Global Health Innovation Fund: Leadership in Digital Health Investing. Retrieved from: http://www.merckghifund.com/]

In addition, according to their various press releases and website, Merck is committed to create breakthroughs through patients’ lives by bringing them the best practices of science in developing medicines and treatments. Merck’s recent blockbuster drug Keytruda is used many types of carcinoma (such as melanoma, non-small-cell lung cancer (NSCLC), small-cell lung cancer (SCLC), head and neck squamous cell carcinoma (HNSCC), classical Hodgkin Lymphoma (cHL), primary mediastinal large B-cell lymphoma (PMBCL), urothelial carcinoma, microsatellite instability-high (MSI-H) or mismatch repair deficient cancer, gastric or gastroesophageal junction adenocarcinoma, esophageal cancer, cervical cancer, hepatocellular carcinoma, and merkel cell carcinoma)[footnoteRef:85]. Having such wide range disease curing features of one drug, Merck is all set realize billions of dollars under Keytruda which is used alongside with chemotherapy as an immunotherapy promoting technological usage in Merck’s growth. [85: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf]

Global economy has a significant impact on either success or decline of any multinational organization including Merck. Operating in more than 140 world countries, any changes in economic policy and regulations of those countries will have either positive or negative effect on business activities of Merck either locally or on whole business. Major economic factors such as inflation rates, interest rates, foreign exchange rates and fluctuations, GDP, and economic cycles of respective nations govern Merck business activities.

Pharma industry by nature is a highly capital-sensitive industry companies spending billions of dollars in R&D creating breakthrough drugs and therapies. Merck’s investment on R&D has been growing over years, it was about $11.11 billion in 2010 and later on declined to $7 billion nearly until 2015.[footnoteRef:86] However, since 2016, its spending has been increasing to about $10.14 billion in 2016, $10.2 billion in 2017, $9.8 billion in 2018 and $9.9 billion in 2019, which was about 1% increase when compared to that of 2018.[footnoteRef:87] That 1% increase was primarily driven by $993 million charge in 2019 against the acquisition of Peloton,[footnoteRef:88] along with the higher expenses for clinical trials and development as well as increased investments on discovery research and early drug development. Data and privacy laws are also pivotal on Merck’s business across both developed and emerging nations as respective governments are posing stringent policies. The EU General Data Protection Regulation, effective since May 25, 2018 along with the California Consumer Act effective as of January 01, 2020 are some of the strongly impact economic reforms on Merck’s operations.[footnoteRef:89] Performance of Merck also depends on their rebates, sales return, discounts, and chargeback policies which need more cash by increasing cash burden on Merck. With the TCJA enactment in 2017, Merck has reported one-time payment of about $5.5 billion in 2017 along by paying $4.5 billion, $1.5 billion, and $4.9 billion, in income taxes for years 2019, 2018 and 2017 respectively.[footnoteRef:90] It shows how Merck allocates its cash through necessary debts with interest rates associated which have adverse impact over time and change in economy. [86: Merck & Co. (n.d.). Merck & Co 2015 Annual Review. Retrieved from: http://d1lge852tjjqow.cloudfront.net/CIK-0000310158/fd6051bf-9334-4dcc-be51-9f07b61c2ed4.pdf] [87: Merck & Co. (n.d.). Merck & Co 2017 Annual Review. Retrieved from: https://www.sec.gov/Archives/edgar/data/310158/000031015818000005/mrk1231201710k.htm] [88: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf] [89: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf] [90: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf]

Inflation and foreign exchange rates are the greatest contributing factor for rise or decline of revenues generated across more than 140 countries for any given fiscal year of Merck. Headquartered in Kenilworth, New Jersey, US and listed on the New York Stock Exchange (NYSE), annual revenues and books are reported according to the GAAP rules where they realize profit or report losses depending on the exchange rate fluctuations. It was reported that the worldwide revenues of $46.8 billion in 2019 with an increase of about 11% when compared with that of 2018 including 2% from the unfavorable effect of foreign exchange.[footnoteRef:91] Merck’s Animal Health segment profits decreased about 3% in 2019 driven by unfavorable product mix, high investments in selling and product development and unfavorable foreign exchange impact.[footnoteRef:92] During 2019 and 2018, Merck reported unrealized losses of about $13 million and $26 million respectively in other (income) expense, net due to investment with unfavorable impact of foreign exchange.[footnoteRef:93] [91: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf] [92: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf] [93: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf]

Economic cycle also has an influence on performance of businesses enabling them to grow during positive economic cycle while plummeting during negative economic cycle. Despite, there are industries which are essential for any country irrespective of economic cycle such as food and beverages (F&B) industry, drug industry and etc. Government policies and administrative norms also regulate the economic cycle of particular country governing their spending on healthcare which in turn effect Merck’s activities. Pharma sector serves as the backbone of many advanced economic nations such as the US as well as emerging economies such as China and India. Pharma sector represents about 4% of the total US GDP which is highly regulated and competitive industry.[footnoteRef:94] In November 2019, Board of Directors approved to pay $0.61 dividend per Common outstanding stock in January 2020.[footnoteRef:95] Merck had also paid $0.61 in dividend for their first quarter in 2020 which was approved in January 2020 by the Board.[footnoteRef:96] In addition, Merck’s Board authorized purchases of about $10 billion in common stock for their treasury in October 2018[footnoteRef:97] as well as spent nearly $4.8 billion to purchase 59 million shares for treasury during fiscal 2019.[footnoteRef:98] Merck also invested in acquiring Peloton for breast cancer drugs as well as planned to release Herceptin biosimilar partnering with Samsung’s Bioepis against Roche’s ahead of patent expiry in June 2020. Today, Merck has about 56% from international markets out of total revenues excluding the US shows remarkable market presence from that of previous decade. Thus, it is quite clear that Merck has an opportunity for increasing market presence in the lucrative pharma sector along with high susceptibility to global economic factors. [94: TEConomic Partners LLC & PhRMA. (n.d.). The Economic Impact of the U.S. Biopharmaceutical Industry: National and State Estimates. Retrieved from: http://phrma-docs.phrma.org/sites/default/files/pdf/biopharmaceuticaul-industry-economic-impact.pdf] [95: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf] [96: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf] [97: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf] [98: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf]

Daft summarized that political and economic stability, intellectual property rights (IPR) policy, foreign investment policy, trade policy, tax reforms and healthcare sector norms and administrative regulations altogether possess a significant threat on Merck’s commercial business or any multinational corporation across the globe.[footnoteRef:99] [99: Daft, R. L. (2008). Organization theory and design tenth edition. (p. 142) Mason, OH: South-Western Cengage Learning]

Political stability is a major concern for Merck ahead of operating in various countries due to their restrictions on industries, healthcare policies, and drugs consumption. Interference of politicians and bureaucrats in designing a healthcare policy brings in high-end lobbying and corruption activities into picture. Merck is posed to great threat due to political instability, corruption, and other illegal activities especially while dealing with some of the African and Latin American nations.[footnoteRef:100] Policies regarding employment such as minimum wage, union norms, and labor laws effect Merck’s functioning across the globe similar to those of any multinational organization. Minimum wages and employee safety laws are stringent in some nations such as Europe or North America imposing quite a threat for Merck. Pharma industry, by very nature, is an explicitly regulated industry as it directly impacts public health and safety, thus needing all the quality standards to be satisfied while operating in any nation worldwide. Governments across countries decide what Merck is allowed or not allowed to either produce or market in one country. [100: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf]

Intellectual property rights (IPR) law also implies certain restrictions on operations of Merck which at times does not allow them to sell some of their products in some nations. Not all the nations have stringent IPR norms posing a significant threat to Merck as some of its novel drugs could be duplicated or even technology could be copied. Under such instances, it denigrates the originality keeping Merck’s properties at risk of misuse and counterfeit drugs being sold in the same market. Third party infringements or even governments seek to invalidate or circumvent some of the drug approvals for Merck posing an immediate threat for Merck’ operations in those nations. Merck, in 2017 was a victim of cyber-attack where attack disrupted their worldwide network of operations, including manufacturing, research and sales activities.[footnoteRef:101] Taxation norms are also an impeding factor due to government interference on policies such as TCJA enactment by the US in 2017 reducing corporate tax from 35% to 21%.[footnoteRef:102] Such initiatives provide a scope of growth and expansion for firms such as Merck in turn creating an advantage over peers in the market by utilizing their cash for new investments. [101: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf] [102: Stein, J. (2019, December 16). Corporations paid 11.3 percent tax rate last year, in steep drop under Trump’s law. Washington Post. https://www.washingtonpost.com/ ]

Foreign and trade regulations are also governing factors for international operations as they stipulate the foreign direct investments (FDI) because Merck’s major revenue comes from China, Japan, Europe, and Asia. In 2016, UK has signed a memorandum to exit from the European Union which was completed in 2019 with a transitional period from January 31, 2020 to December 31, 2020.[footnoteRef:103] With Brexit, Merck has to now seek separate approvals for drugs in order to market and sell in the UK apart from EU approval through European Medical Agency (EMA). In order to cater to the newly developing pharma market in the UK, Merck has planned to open a £1 billion research hub expecting to employ about 800 workers for the site.[footnoteRef:104] Such policies directly impact the functioning of Merck in specific countries which could either support or denigrate further growth of Merck in a specific nation. [103: O’Neal, A. (2019, December 31). Boris and Britain After Brexit. Wall Street Journal. https://www.wsj.com/] [104: Cookson, C. (2020, August 17). Merck plans to build £1bn UK research hub in central London. Financial Times. https://www.ft.com/]

Pricing is an inevitable issue faced by possibly every global biopharma company such as Merck, Pfizer, JNJ and many more. In 2018, after intense pressure from the US President Donald Trump introducing International Pricing Index (IPI) model making Merck, Pfizer, Novartis, and many other big pharma ceiled their price increase for next five months.[footnoteRef:105] However, Merck, Roche and other firms were back with price increase but less than 10% in 2019 as they had to allocate their capital for producing blockbuster drugs such as Januvia and Keytruda in case of Merck.[footnoteRef:106] In Europe, Merck faces an issue due to competitive pricing due to presence of generics and biosimilars in the market as well as governments apply the method of reference pricing.[footnoteRef:107] Thus, both competitive pricing and reference pricing pose a threat to Merck in order to control its price in turn opting cost saving methods while manufacturing and delivering drugs in the Europe. [105: Wattles, J. (2018, July 20). Merck pledges to cut prices for seven drugs. CNN. https://money.cnn.com/] [106: Darie, T. (2019, July 9). Drugmakers Boost Prices Up to 909%, Defying Political Pressure. Bloomberg. https://www.bloomberg.com/] [107: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf]

Moreover, in 2018, pharma industry in Japan, is subjected to the government-mandated biennial price reductions for pharma products as well as specific vaccines which is likely to occur in 2020.[footnoteRef:108] In 2017, Chinese government also had updated the National Reimbursement Drug List for first time in the eight years which serves as an additional threat for the operations of Merck.[footnoteRef:109] Thus, Merck is exposed to a great threat in terms of pricing as well as tax reforms under government which as said earlier is inevitable. Therefore, Merck has to be wise while allocating its capital as and when needed and devise new methods for cost effective production as well as seeking developments in new and established markets. [108: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf] [109: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf]

Improving patients’ lives through breakthrough discovery of drug or therapies using science is the major vision of Merck which underlines sociocultural aspects are the main factors for Merck to discover and develop drugs accordingly. Thus, aspects such as demographics, lifestyle, disease patterns, urbanization, immunity analysis, epidemic history serve as crucial pieces of information for Merck for R&D. In addition, culture, attitude towards disease and control, and societal value system also contribute to drug development as they guide Merck about response of the government and people after the approval. As a discoverer, Merck needs a thorough understanding of local society facilitating accurate interpretation about the causes and consequences of any new disease or pathogen or a new unknown development in a known disease. Such a deeper analysis requires data intelligence, business, and market intelligence teams to find ongoing developments in the lives of people as well as markets for their R&D purposes. Patient empowerment, changing patient demographics, and patient data are essential attributes influencing active development of drugs in day-to-day business activities of Merck globally. According to their corporate site, Merck is committed to United Nations Sustainable Development Goals (SDG) by contribution majorly to SDG-3, SDG-5, SDG-6, SDG-7, SDG-8, SDG-12, SDG-13, and SDG-17 by 2030.[footnoteRef:110] [110: Merck & Co. (n.d.). MSD Corporate Responsibility Report: Sustainable Development Goals (SDGs). Retrieved from: https://www.msdresponsibility.com/reporting/un-sustainable-development-goals/]

Any milestone achieved by the drug sector is mostly a positive impact on society which could be a turmoil when the discovered drug has some unknown side effects as in case of Vioxx. Millions of people are employed by the biopharma industry by giving hope to the patients and intending to reduce their suffrage. Despite drugs being expensive, they are an essential need bringing in the high social value associated with the drugs. Increasing demand for high-quality disease curing drugs is an explicit driving force behind the operational success of Merck. In recent epidemics and disease outbreaks, pharma companies have played a vital role in curing and preventing occurrence of various diseases by developing vaccines and drugs for AIDS, SARS, swine flu, leukemia and many more. Merck’s role has been pivotal in developing vaccines and drugs such as Streptomycin, M-M-R II vaccine and also eradicating river blindness in Africa.[footnoteRef:111] Merck along with Pfizer, JNJ, GSK and other five firms is committed to the social value under developing the SARS Covid-19 according to the memorandum released by the FDA.[footnoteRef:112] Therefore, it makes Merck, the center of ecosystem of life seeking constant support from society and governments fostering improved health by developing lucrative drugs. [111: Merck & Co Company Overview. (n.d.). Retrieved from: https://www.merck.com/company-overview/history/] [112: Merck & Co. (2020, September 8). Biopharma Leaders Unite to Stand with Science. Retrieved from: https://www.merck.com/news/biopharma-leaders-unite-to-stand-with-science/ ]

It was reported that Merck had a revenue growth of about 11% in 2019 in worldwide sales primarily driven by Keytruda in oncology as well as alliance revenues related to Lynparza and Lenvima.[footnoteRef:113] Merck has revenues exceeding $500 million from across North America, Latin America, Europe, and Asia-Pacific segments in 2019, 2018 and 2017 respectively showing an expanding curve. Merck reported $46.84 billion in revenues in 2019 of which about 44% was from the US while revenues from Europe, Middle-East and Africa were about 28% with 7.7% from Japan, 6.9% from China, 6.3% from Asia-Pacific and remaining 8.9% from the rest of world.[footnoteRef:114] It can be understood that China, Japan and the US are the major markets for products of Merck in terms of annual revenue. Merck’s international revenue has been increasing over years which was about 30% in previous decade rising to about 56% in 2019. Such an increase in international revenues can be attributed to ageing population worldwide and growing therapies awareness. Japan and China have been main sources other than developed Europe and the US as ageing is a major factor governing high drug sales in those countries. [113: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf] [114: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf]

Merck’s consumers include doctors, hospitals, governments, public health agencies, benefit management companies, welfare companies, business corporations, pharmacies, and patients (in case of the US). Thus, Merck constantly seeks support from public health and welfare groups, governments, society and pharmacies, data mining and business analytic firms along with public health officials in order to be informed ongoing changes in the public health as well as in order to obtain necessary permissions. Data collection, data analysis, data analysis of inside manufacturing process as well as data collection from R&D labs, data from pre and post clinical trials and local patient data is the basic datum needed by Merck for conducting its daily business operations worldwide. Merck’s strategy is closely linked to developing new drugs while creating a value for the society by providing drugs to patients, committing themselves to eight of seventeen UN SDGs.[footnoteRef:115] [115: Merck & Co. (n.d.). MSD Corporate Responsibility Report: Sustainable Development Goals (SDGs). Retrieved from: https://www.msdresponsibility.com/reporting/un-sustainable-development-goals/]

As aforementioned, Merck, due to its nature of operating industry is exposed to definite and inevitable threats from various national governments in terms of pricing and policy. There are certain countries where using certain drugs is prohibited while in some countries there are restrictions on certain chemical composition of various drugs. Such policy imposes an additional burden on Merck to design market specific drugs or therapies so as to keep gaining revenues from such nations. Various trade restrictions also act as barriers for functioning of Merck, for instance cold war between the US and China. The US presidency in 2018 has enacted the Foreign Investment Risk Review Modernization Act (FIRRMA) which expands the scope of the Committee on Foreign Investment in the United States (CFIUS)’s watch on foreign investments especially creating panic among Chinese investors who withdrew their investments from the US firms.[footnoteRef:116] Under one instance, the US government was very specific about a platform called Patient Like Me, a widely used US patient portal.[footnoteRef:117] Patient Like Me was reviewed by CFIUS asking Patient Like Me to reject $100 million investment from a Chinese digital healthcare firm, iCarbonX,[footnoteRef:118] posing a threat to national security by sharing sensitive information of the US with Chinese investors. Having such stringent reviews in place has decreased Chinese investments in the US biotech firms by over 60% through 2019 when compared to same period in 2018, according to a news report.[footnoteRef:119] All in all, international sector has major impact on operations of Merck as it operates in more than 140 countries whose regulations are quite risky for its sustenance. [116: Congressional Research Service. (2020). CFIUS Reform Under FIRRMA. Retrieved from: https://fas.org/sgp/crs/natsec/IF10952.pdf] [117: Robbins, R., Herper, M., & Garde, D. (2019, April 4). U.S. forces health company to ditch Chinese investor, in sign of heightened concern over foreign influence. STAT News. https://www.statnews.com/2019/04/04/u-s-forces-health-company-to-ditch-chinese-investor-in-sign-of-heightened-concern-over-foreign-influence/] [118: Robbins, R., Herper, M., & Garde, D. (2019, April 4). U.S. forces health company to ditch Chinese investor, in sign of heightened concern over foreign influence. STAT News. https://www.statnews.com/2019/04/04/u-s-forces-health-company-to-ditch-chinese-investor-in-sign-of-heightened-concern-over-foreign-influence/] [119: Hancock, T., & Kuchler, H. (2019, July 8). Chinese VC spending on US biotech hit by security reviews. Financial Times. https://www.ft.com/content/6d647f7e-a13a-11e9-974c-ad1c6ab5efd1]

In a nutshell, external environment provides an opportunity for Merck to grow and expand to unseen markets as well as discovering new treatments from existing markets using their competitive intelligence (CI) teams. As Daft explained, any organization irrespective of industry needs to find a fit between internal structure and the corresponding external environment. Thus, it necessitates for Merck executives to seek new ways in order to adapt to the changing external environment. Merck along with its explicit drug development expertise and adapting nature could be competitive for long term in the sophisticated pharmaceutical industry.

A Harvard study suggests that adaptability is the main attribute that makes an organization competitive in the modern business world.[footnoteRef:120] It emphasizes on how internal environment of an organization can be a pathfinder for being competitive as employees are wizards for innovation and development. Daft has also emphasized on how internal environment is an essential attribute for an organization in order to be adaptable with the changes in the external environment.[footnoteRef:121] [120: Reeves, M., & Deimler, M. (2011). Adaptability: The New Competitive Advantage. Harvard Business Review, 89(7/8), 134–141 ] [121: Daft, R. L. (2015). Organization Theory & Design Twelfth Edition. Mason, Ohio: South-Western Cengage Learning.]

Michael Porter, in his book ‘The Competitive Advantage of Nations’, also discussed how an organization’s internal atmosphere contributes to create a long-term sustainable advantage in the marketplace.[footnoteRef:122] Any business including pharmaceutical industry, in order to stay up the game has to familiarize itself with constant evolving marketplace needs. An organization can be prospective, according to Miles and Snow Typology given the flexibility of its internal structure developing a change-ready culture inside the company. [122: Porter, M, E. (1990). The Competitive Advantage of Nations. The Free press. ISBN 0-684-84147-9. ]

In case of Merck, people are to be treasured as they open new windows for the company through their expertise and constant exploration. Change is the only constant in today’s world businesses and an explicit factor for organizations to understand in order to be competitive in the market. Thus, in order to keep up with continuous evolving environment and unpredictable challenges, internal environment comprising management, marketing, operations, finance, and other functional divisions altogether enhance the growth of Merck in the market. Merck has advantage of vast global presence as it operates in more than 140 countries and explicit information about ongoing changes in the market. Merck’s expertise in discovering and developing oncology drugs and vaccines gives them an upper hand to respond in any unpredictable circumstances in the field of medical science. Elsewhere, Merck also has definite threat due to generic competition from its peers in terms of their marketing activities and some exclusive drug developments at affordable prices. Loss of patent exclusivity (LOE), patent litigations, drug approvals, and pricing constraints create significant burden on operations of Merck.

Kenneth C. Frazier is the Chairman of the Board and the CEO of Merck succeeding Richard T. Clark since December 01, 2011;[footnoteRef:123] and substantially increased Merck’s investment on research including early research as well as on launching value creating products in the society. Merck has achieved several tens of FDA and EMA approvals creating blockbuster revenues over years under his regime such as M-M-R-II, Gardasil, Lynparza, Keytruda, and many more. Ken is known for injecting philanthropic initiatives into the 125-plus years history of Merck while committing to its mission of improving lives across the globe. [123: Businesswire. (2011, October 06). Merck Announces Retirement of Chairman and Former CEO Richard T. Clark. Businesswire. https://www.businesswire.com/news/home/20111006006018/en/Merck-Announces-Retirement-of-Chairman-and-Former-CEO-Richard-T.-Clark]

One of the Harvard study explained how good corporate governance is the key for achieving long-term goals as well as creating value for shareholders.[footnoteRef:124] Today corporate governance is a holistic function more than mere a corporate outlook on policy. Senior executives in any growing organization should proactively be a part of both strategic as well as technical initiatives taken by the company. Merck’s leadership team has been doing an applauding job in this prospect where they not only design strategies but also are proactive in executing and outperforming the expectations. Over years, Merck has been successful by achieving various breakthroughs in fields of oncology, neuroscience, vaccines, animal health and OTC drugs. As part of their growing strategy, Merck executives have divested their consumer healthcare business effective from October 1, 2014 as they began on a journey for being a pure research-based organization.[footnoteRef:125] Their planned spin-off of Organon & Co in 2021 also points towards their aggressive nature of forming a pure-science based company. Despite intense competition from peers through generic drugs, Merck has been successful in the by pure science-based activities such as discovery and manufacturing of patented drugs with revenues of approximately $47 billion in 2019. [124: Subramanian, G. (2015). Corporate Governance 2.0. Harvard Business Review, 93(3), 96–105.] [125: George, J. (2020, February 07). What to expect from new Merck spinoff, according to the CEO. Philadelphia Business Journal. https://www.bizjournals.com/philadelphia/news/2020/02/07/what-to-expect-from-new-merck-spinoff-according-to.html ]

Merck’s commitment to their vision of creating breakthroughs in patients’ lives is proven constantly through their explicit research and discovery of drugs while proactively contributing to UN SDG goals. Irrespective of four different operating business segments, research and development is carried out under single entity called as Merck Research Laboratories (MRL) headed by Roger M. Perlmutter. While the manufacturing which is the main source of raising revenues is operated as Merck Manufacturing Division (MMD) led by Sanat Chattopadhyay and Merck Animal Health Division is led by Richard R. DeLuca Jr. On the other hand, Frank Clyburn, and Michael T. Nally serve as Chief Commercial Officer and Chief Marketing Officer respectively. Julie L. Gerberding serves as Merck’s Chief Patients Officer while Robert M. Davis serves as their Chief Financial Officer. Steven C. Mizell is Merck’s Chief HR Officer, Dave Williams is Chief Information & Digital Officer who has led Merck through various technological advancements such as developing 3D printing work centers for expedite research and prototype designing. Jennifer Zachary is their legal counsel ensuring Merck’s policies and codes of conduct in place across the organization. Merck’s Board of Directors is a team of 13 individuals along with one member from Schering-Plough also is an added advantage as their opinion is critical for every initiative taken by Merck. Having expert and diversified executive team and Board allows Merck to perform with par excellence which in turn develops the trust in shareholders while committing in creating the value to the society.

With its wider market presence, Merck reported $10.21 billion, $8.55 billion, and $8.04 billion in selling and administrative expenses excluding (depreciation and amortization) D&A in 2019, 2018 and 2017 respectively.[footnoteRef:126] It shows Merck’s increased expenditure on marketing activities in order to acquire major market share especially for Keytruda and Gardasil in global markets. In 2015, it was attributed that infectious and respiratory disease drug market share was 75.84% and consumer health and vaccine market share rose to 76.11%. [126: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf]

According to a branding agency in the US, Pfizer was aggressive and spent just near $20 billion for branding followed by Roche spending $15.5 billion and a tie between Merck and JNJ with $13.3 billion on branding in 2016.[footnoteRef:127] Such a neck-to-neck branding activity induces an intense competition between Merck and its peers along with Merck’s blockbuster drugs, Gardasil and Keytruda. With its corporate strategy, Merck is seeking definite competitive advantages through its expertise in the market. It was reported that Merck spent about $95 million specially for DTC TV advertisements in 2019.[footnoteRef:128] [127: Brennan, Z. (2019, July 24). Do Biopharma Companies Really Spend More on Marketing Than R&D?. Regulatory Focus. https://www.raps.org/news-and-articles/news-articles/2019/7/do-biopharma-companies-really-spend-more-on-market] [128: Bulik, B. S. (2020, February 19). Keytruda. Fierce Pharma. https://www.fiercepharma.com/special-report/keytruda-top-10-ad-spenders-big-pharma-2019 ]

Ken, Merck’s CEO and Chairman has constantly reinforced R&D into work culture of Merck making it one of the most valuable assets in the market. Their R&D spending has boosted over years which near nearly $10 billion in 2019 more than any of its prime competitors. Their vivid strength of developing pipeline is fostering Merck into a rapid growth environment whose market capitalization has been increased by over 11% in 2019.[footnoteRef:129] [129: Phillpidis, A. (2019, November 18). Top 10 pharma companies of 2019. GEN Genetic Engineering & Biotechnology News. https://www.genengnews.com/a-lists/top-10-pharma-companies-of-2019/]

In 2018, global pharmaceutical revenues accounted for about $952.1 billion with major sales coming from oncology, immunology, and nervous system. Merck was the top fourth company by acquiring about 4.44% of market share in 2018. Top ten companies in the global pharmaceutical segment in terms of market share are Eli Lilly & Co (2.57%), Bayer AG (2.84%), AbbVie Inc (3.45%), Sanofi (4.11%), GlaxoSmithKline (4.19%), Johnson & Johnson (4.27%), Merck & Co (4.44%), Roche Ltd. (4.69%), Novartis (8.44%) and Pfizer Inc (5.6%).[footnoteRef:130] [130: Pharmaceutical Technology. (2020, January 24). The top ten pharmaceutical companies by market share in 2018. Retrieved from: https://www.pharmaceutical-technology.com/features/top-pharmaceutical-companies/]

Merck also began advertising directly to consumer (DTC) for Keytruda after its rival Bristol-Myers Squibb’s Opdivo advertisement. It had spent about $177.5 million in 2018 and $157.3 million in 2019 for advertising Keytruda, which was the very first time marketing an oncology drug on television. However, Merck had stopped further advertising of Keytruda in late 2019 given its brand name and awareness among the US consumers. Keytruda has raised about $11.2 billion in revenues globally during fiscal 2019. It is forecasted to raise $25 billion in revenues by 2025 by Wall Street analysts leaving behind Humira sales developed by AbbVie .[footnoteRef:131] Merck’s worldwide presence fetches the information advantage which allows Merck to design specific country marketing plans in order to cater those specific nations. Merck is aggressive on collaboration and licensing activities which brings an additional advantage of succeeding in global markets. [131: Hooper, C. L. & Henderson, D. R. (2020, March 05). FDA Shouldn’t Keep Safe Drugs off the Market. Wall Street Journal. https://www.wsj.com/articles/fda-shouldnt-keep-safe-drugs-off-the-market-11585175286]

Merck recently in October 2019, signed a partnership deal with the UK-based 4D Pharma in order for developing three Live Biotherapeutics based vaccines. Merck seeks active contribution to society by giving away about $2.7 billion worth of products free in providing basic healthcare for under poverty line population, $84 million through cash and grant contributions and many more. There is also an indicator on the corporate website which measures effectiveness and fraudulent violations if any made by the Merck during their promotional and other marketing activities. Merck’ performance is indicated through either number of warning letters or untitled letters received either from the Office of Prescription Drug Promotion (OPDP; previously known as the Division of Drug Marketing, Advertising and Communication (DDMAC) renamed in September 2011) or from the Advertising and Promotional Labeling Branch (APLB) of the FDA Center for Biologics Evaluation and Research.[footnoteRef:132] Since 2014 through fiscal 2019, number of warning letters issued either from OPDP or APLB are zero which shows their commitment to code of conduct and fair play in the market. Such initiatives talk for itself how Merck is striving to create a positive impact in patients’ lives as well as developing breakthroughs in medicines leaves Merck to succeed against its competitors. [132: Merck & Co. (n. d.). Ethics & Values: Sales and Marketing Practices. Retrieved from: https://www.msdresponsibility.com/ethics-values/sales-marketing-practices/ ]

A McKinsey study suggests that 35% of pharmaceutical sector’s profit and loss is attributed to their supply chain operations.[footnoteRef:133] Pharma industry is known for having silos between supply side and demand side whose inventory levels are double as that of industry best practices. Their lead times are often fifteen to sixteen times greater than that of other industries with higher level of obsolescence in their supply chain. Thus, in order to cater to needs of market, Merck has devised strategy for connecting the supply chain and demand together using advanced systems. According to Merck’s 2016/2017 corporate responsibility report, Merck has restructured its supply chain in order to save costs and improve capacity.[footnoteRef:134] Their main restructuring was aimed at developing their current manufacturing setups across all 80 distribution locations along with 20 internal and external sites. Redesigning their processes and connecting all 100 locations along their global chain as well as improving their corresponding supplier connectivity was part of their 2016 initiative. They were seeking improvement through employing various Lean and Six Sigma projects across their 100 locations. However, along with above mentioned sites, Merck also operates 148 manufacturing plants externally by producing about 10,300 various product sizes which need data in order to sync with their existing system.[footnoteRef:135] [133: McKinsey & Company. (2012, August 01). Pharma Manufacturing for a New Era. McKinsey & Company. https://www.mckinsey.com/industries/pharmaceuticals-and-medical-products/our-insights/pharma-manufacturing-for-a-new-era#] [134: Lopez, E. (2017, March 3). Why Merck & Co. turned to supply chain integration to save costs. Supplychain Dive. https://www.supplychaindive.com/news/merck-co-supply-demand-planning-manufacturing-integration/436496/ ] [135: ]

Major disadvantage of Merck’s previous system was their insufficient internal data which delayed production and delivery, thus increasing the lead times about ten to fifteen weeks in general. Such a backlash was also prevalent due to inefficient procurement and planning process, which was later spread to manufacturing, and delivery processes. Merck’s executives believed that such a backlash was caused due to unavailability of market demand information accurately on a timely basis which induced significant gap in the supply chain. Thus, after integration of supply chain and demand, global employees could see the actual finished goods available in the company which could be segregated according to the market needs. Henrik Frojdh, Supply Chain Planning Lead at MSD, said that the only way Merck saw transforming its system was by connecting systems as in providing a single-step solution by integrating demand and supply chain.[footnoteRef:136] Merck reinforced that concurrent planning is the key aspect of their new Enterprise Resource Planning system since 2016 which has helped them deliver great results through 2019 by catering to drugs improving patients’ lives which is their purpose of existence. [136: Cheater, A. (2017, February 16). MSD’s journey to remove silos in its end-to-end supply chain. Kinaxis. https://www.kinaxis.com/en/blog/msds-journey-remove-silos-end-end-supply-chain]

Ken, in 2019 announced that Merck is going to optimize their existing global real estate footprint in terms of revamping and shutting down some of their existing manufacturing plants. Merck has allocated about $1.2 billion as costs for shaking-up its manufacturing network.[footnoteRef:137] Merck is positive about its optimization plans which are expected to be finished by 2023 who has allocated $4 billion towards new investments along with Keytruda approvals across the globe. Thus, it can be noted that Merck is quite intuitive in analyzing its existing gaps seeking initiatives to mitigate in order to gain a long-term valuable proposition in the global pharma industry. [137: Manufacturing Chemist. (2019, May 2). Merck & Co manufacturing restructure risks half billion in factory shut-downs. https://www.manufacturingchemist.com/news/article_page/Merck_and_Co_manufacturing_restructure_risks_half_billion_in_factory_shut-downs/154248]

As aforementioned, capital and resource allocation along with R&D serve as the competencies for Merck making it a competitive global pharmaceutical organization. Merck has been reporting continuous increase in revenues since 2014 with nearly $47 billion in 2019, $42 billion in 2018, and $40.2 billion in 2017. Merck has total assets of $84.5 billion in 2019 and $82.7 billion in 2018 while total liabilities of $58.4 billion in 2019 and $55.8 billion in 2018. Elsewhere its competitors, JNJ had total assets of $157.7 billion and total liabilities of $98.3 billion[footnoteRef:138] and Pfizer reported total assets of $167.5 billion and total liabilities of $104.04 billion in 2019.[footnoteRef:139]. [138: Johnson & Johnson. (n.d.). Johnson & Johnson 2019 Annual Report. Retrieved from: http://www.investor.jnj.com/annual-meeting-materials/2019-annual-report] [139: Pfizer. (n.d.). Pfizer 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/317678438/files/doc_financials/2018/ar/Pfizer-2019-Financial-Report.pdf]

Figure 2: Current assets and current liabilities

Merck over years has seen increase in its revenues which appreciated total asset value over years depicted by above graph in figure 2. Table 1 below depicts current and quick ratios of Merck along with Pfizer and JNJ providing an overview of respective company’s ability to pay off their corresponding debts. Often referred as liquidity ratios, current and quick ratios exhibit an ability of a company to pay off its short-term debts through liquidating its assets indicating Merck is far ahead in its ability to manage its operations while clearing its current obligations.

Table 1: Liquidity Ratios

JNJ conducts business through pharma segment, consumer goods and medical equipment divisions while Pfizer also has Biopharma segment, Upjohn segment and consumer healthcare joint venture with GSK effective on July 31, 2019. Both JNJ and Pfizer have lucrative consumer health divisions which boosts their revenues; JNJ reported $82 billion in 2019 and $81.5 billion in 2018[footnoteRef:140] while Pfizer recorded $53.65 billion in 2018 and $51.75 billion in 2019.[footnoteRef:141] Elsewhere Merck has $46.84 billion in 2019 which is generated only through branded drugs showing Merck’s ability of pure sciences generating revenues through R&D, licensing, and partnerships. Thus, it exhibits Merck’s stronger position in immunology, oncology, vaccines as well as neuroscience making it a strong competitor in the global biopharma shown below by the grapy between pretax income and net profits. [140: Johnson & Johnson. (n.d.). Johnson & Johnson 2019 Annual Report. Retrieved from: http://www.investor.jnj.com/annual-meeting-materials/2019-annual-report] [141: Pfizer. (n.d.). Pfizer 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/317678438/files/doc_financials/2018/ar/Pfizer-2019-Financial-Report.pdf]

Figure 3: Pretax Income & Net Profits from continuing operations[footnoteRef:142] [142: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf]

Trendline in the above picture depicts how net income of Merck has been increasing from fiscal 2014 through 2019, according to their SEC filings. As mentioned earlier, Merck possess a competitive advantage as it generates profits from its cash generated through operational activities. Merck has been cautious in allocating capital for its various business initiatives specially since 2016 where they planned to restructure their manufacturing facilities while taking up new facilities for making Keytruda.

Below picture (Figure 4) also depicts cashflow of Merck through 2019 since 2014 fiscal showing it has been successful in managing its capital across the busines activities. All in all, it is significant that capital and resource allocation is an underlying competency possessed by Merck in order to succeed in globally by using effective actions to conduct R&D and transforming into pure science company.

Figure 4: Cashflow performance

Earlier in the organizational strategy, this paper analyses Merck’s global strategy as a prospector in terms of active discovery and development of novel drugs treating new known diseases and developing breakthrough vaccines. Innovation has been a driving force for Merck since its founding in late 19th century which in order to be a leader in biopharma industry is necessary. Merck’s purpose of existence is to improve lives which it has been committed to since years by developing drugs and vaccines to fight against various diseases and in turn contributing to the society. [footnoteRef:143] [143: Merck & Co. (n.d.). Research and Products. Retrieved from: https://www.merck.com/research-and-products/]

Not only developmental activities, but also Merck is vibrant in conducting early discovery and research, pre and post clinical trials by collaborating and licensing through various strategic initiatives such as Merck Global Health Innovation Fund (GHI).[footnoteRef:144] Merck has also pledged with other global competitors in fighting against the AMR through sponsoring research by donating to AMR Action Fund.[footnoteRef:145] Expense on R&D includes clinical research, discovering, testing, and post release tests of new drugs as well as exploration for existing drugs for any new possibilities. Merck is aggressive in acquiring if any biotech firm is value creating in terms of discovery and development of drugs and therapies; it usually conducts research through its own R&D expertise, strategic partnerships, collaboration and licensing agreements, and various sponsorship programs. [144: Merck & co. (n.d.). Global Health Innovation Fund: Leadership in Digital Health Investing. Retrieved from: http://www.merckghifund.com/] [145: Merck & Co. (2019, October 1). Working together to create a sustainable market for antibiotics. Retrieved from: https://www.merck.com/stories/working-together-to-create-a-sustainable-market-for-antibiotics/ ]

Figure 5: Merck’s R&D expense trend through 2019

According to Merck’s SEC filings, currently immuno-oncology, neuroscience, vaccines, and respiratory diseases are major fields research and development is being done. Merck’s pipeline activity is updated every quarter on their corporate website which as of July 31, 2020 has about 94 candidates inclusive of phase 2, phase 3 and under review candidates.[footnoteRef:146] Some of 94 are developed as monotherapies, while some are developed to be used in conjunction with Keytruda in certain carcinoma treatments and others are developed in collaborations. (KN524) (US) LENVIMA® MK-7902 and (NCCH1508/REMORA) (JPN) LENVIMA® MK-7902 are two candidates out of 94,[footnoteRef:147] of which the FDA had asked for Complete Review Letter (CRLs) from Merck for an explicit study of those two candidates as previously submitted reports during trials were lacking certain details denying approval. [146: Merck & Co. (2020, July 31). Research & Products: Pipeline. Retrieved from: https://www.merck.com/research-and-products/product-pipeline/] [147: Merck & Co. (2020, July 31). Research & Products: Pipeline. Retrieved from: https://www.merck.com/wp-content/uploads/sites/5/2020/08/Merck-Public-Pipeline.pdf]

Out of nearly 71,000 employees worldwide, Merck employs one-fifth in research activities which also includes 3D-prinitng workspaces for developing and designing tissue or cell prototypes and hard-to-find manufacturing parts. Merck is the member of the trade group in the US, PhRMA (Pharmaceutical Research and Manufacturers of America) who spent about $79.6 billion in R&D in 2018 with about 78% expenditure inside the US while all the PhRMA members together spend about 19.2% of their consolidated revenues against R&D yearly. Acquisition of Pelton, collaboration with 4D Pharma in 2019 is facilitating Merck to succeed in having cutting edge technology for expedited discovery and development of novel and lucrative drugs. Merck has eight essential locations for conducting its R&D which are in Boston (MA), Cambridge (MA), Kenilworth (NJ), Rahway (NJ), South San Francisco (CA), Upper Gwynedd (PA), West Point (PA) and London (UK).[footnoteRef:148] In a nutshell, it marks Merck’s culture of engaging with global employees and exploiting their core competencies in bringing value to their brand by active discovery and sale of drugs by inducing a positive and healthy competition in the global marketplace. [148: Merck & Co. (n.d.). Research & Products: Discovery & Development. Retrieved from: https://www.merck.com/research-and-products/discovery-development/]

Merck has always been imperative about its international operations since mid-20th century by expanding from America to Asia, Europe, and middle eastern parts of the globe. Initially in 1899, Merck published ‘Merck Manual’ which had treatments like bloodletting for acute bronchitis, arsenic for impotence and almond bread for diabetes. Merck manual soon became a widely used medical reference which is in use even today. After establishing commercial units in 1891 and transporting chemicals across the New York, George W. Merck founded Merck Research Laboratory (MRL) in 1933 marking Merck’s first step into pharmacological research with three divisions: Pure research, the Merck Institute for Therapeutic Research and Applied Research.[footnoteRef:149] Today Merck operates in 140 countries with about 50 manufacturing sites spread across the globe. [149: Merck & Co. (2020). Merck Company History. Retrieved from: https://www.merck.com/company-overview/history/]

Table 2: Revenue distribution of Merck across globe[footnoteRef:150] [150: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf]

It can be noted from the above table that the US is the single largest market followed by the Europe, Japan, China and so on. Sales in Europe plunged due to generic competition for some of the patent expiring drugs of the Merck such as Emend which was reapplied and approved. Total international patents owned by Merck today are 1145 along with 55 US patents while Merck operates under 107 tradenames worldwide.[footnoteRef:151] Merck has filed about 130 New Drug Applications (NDA) and currently is the has its own 90 APIs with the US FDA and EMA.[footnoteRef:152] One main advantage of such a decentralized operational structure of Merck is that international locations have autonomy creating their own effective measures for specific markets. Pharmaceutical and animal health segments operate individually seeking constant support from their global teams as well as MRL by effective means of resource allocation. Merck also involves itself in collaboration and strategic partnerships where research and drug development is carried out external facilities which are monitored by Merck or partners depending on the type of the deal. [151: Merck & Co. (n.d.). Company Overview. Retrieved from: https://www.merck.com/company-overview/] [152: Merck & Co. (n.d.). Company Overview. Retrieved from: https://www.merck.com/company-overview/ ]

Figure 6: Scientific Management at Merck for Domestic and International Environment[footnoteRef:153] [153: Nichols, N. A. (1994). Scientific Management at Merck: An Interview with CFO Judy Lewent. Harvard Business Review, 72(1), 88–98.]

Merck has been efficient in executing international operations due to structural efficacy opted since late 20th century. Merck has developed a reliable model for scientific management early on in order to cater to the growing demand in the international environment. According to a HBR article, Judy Lewent in 1994, Merck’s then CFO has expressed her views on how Merck over years had been structured itself for supportive functioning in the global market.[footnoteRef:154] Complexity, risk, and uncertainty are the basic attributes of global market which should be considered while devising any organization’s strategic plan. [154: Nichols, N. A. (1994). Scientific Management at Merck: An Interview with CFO Judy Lewent. Harvard Business Review, 72(1), 88–98.]

Daft emphasized on ‘transnational model’ a framework being used by modern organizations representing an advanced global structure,[footnoteRef:155] exploiting both local and global advantages for their organizational success. Independent locations having decentralized power as well as the coordination and integration activities between the headquarters and global offices are setting Merck high on its market performance. Thus, it shows Merck’s ability and efficiency in adapting to the necessary changes in the international environment with mechanisms integrating varied parts across the globe. With its prospective Organon & Co., spin-off by first half of 2021, Merck is in its way of achieving vibrant success in new markets such as Asia whose potential is still untapped. [155: Daft, R.L., & Armstrong, A. (2015). Organization Theory and Design (3rd ed.). Toronto, ON: Nelson Education.]

Table 2: Top selling products of Merck & Co

As previously mentioned, Merck manufactures branded prescription drugs and vaccines both for humans and animals. As of October 1, 2014, Merck divested their slow-moving consumer care business unit and also is planning a spin-off of their Women healthcare products and biologics segment called as Organon & Co., in 2021. Pharmaceutical segment manufactures human drugs and vaccines in addition to their focused and applied research and development of novel drugs and vaccines. While Merck’s animal health division develops drugs and vaccines for livestock, companion animals, poultry, and aquaculture. Alliances and health services sectors focus on the development and discovery of drugs under partnerships and strategic alliances and third-party discoveries. It was reported that Merck had many drugs selling at gross revenues of over $1 billion in domestic and international markets shown by the above figure 7 in their 10-K filings for fiscal 2019.[footnoteRef:156] [156: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf]

Information technology and control systems form a crucial part in functioning of any organization as they are vital attributes for effective decision-making. Merck operating globally in more than 140 countries, previously had a coordinated system for manufacturing and marketing which they refer to campaigning system of supply chain.[footnoteRef:157] Over years, Merck has followed typical organizational supply chain where they used to procure raw materials and produce drugs in batches making one product after another. They observed inventory costs and storage costs going up with a significant gap between production and delivery of drugs with extravagant lead times, thereby reducing overall product margins. In addition, globalization is making pharmaceutical companies to look for a more differentiating strategy more than developing breakthrough drugs. With given indefiniteness in the operations as well as need for more differentiating strategy, executives at Merck responded with ‘ Restructuring Program (RP)’ in order to evolve along with changing external business environment.[footnoteRef:158] [157: Supply Chain Brain. (2018, February 14). How Merck Is Building an End-to-End Supply Chain. Retrieved from: https://www.supplychainbrain.com/articles/27574-how-merck-is-building-an-end-to-end-supply-chain-1] [158: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf]

Major objectives under RP devised in 2016 is end-to-end integration of Merck’s supply chain along with demand. In other words, drugs and vaccines are produced according to the real-time demand which means that setting up manufacturing schedules according to real-time requirement. All the locations across the globe along with their supplier partners can view the current requirement and process the incoming or outgoing activities accordingly. Merck partnering with IBM has already began setting up end-to-end, completely integrated network of supply chain from supplier to customer end. Such globally visible and integrated system provides explicit information of inventory, required stock input levels, accurate requirement of next level raw materials in producing drugs and vaccines necessary.

Merck along with IBM, devised an effective manufacturing system using Six Sigma and Lean principles in order to control their piled up inventory and costs associated, called as Merck Producing system (MPS) using SAP R/3 and integrating it with their existing enterprise resource planning system (ERP). [footnoteRef:159] With MPS in place, Merck has seen 30% reduced production-related inventory costs, 20% lower operating expenses at plant level, and 20% decrease in changeover time in various production lines. Demand requirement planning along with traditional ERP has improved efficiency of Merck’s internal system which could be done by imbibing advanced technological platform through IBM, has given benefits in terms of inventory, visibility of drug discards, and change in workflow.[footnoteRef:160] [159: Abel, J. (2019, June 27). Digital Transformation at Merck Pharmaceuticals. ARC Advisory Group. https://www.arcweb.com/blog/digital-transformation-merck-pharmaceuticals] [160: Abel, J. (2019, June 27). Digital Transformation at Merck Pharmaceuticals. ARC Advisory Group. https://www.arcweb.com/blog/digital-transformation-merck-pharmaceuticals]

In addition, Merck has also sought its way into digitally transforming its vaccine production facilities using IoT and has come up with five main initiatives: product data management, predictive condition monitoring, steam trap monitoring, technology-enabled laboratory, and Stealth Digital Strategies & Open Standards. These electronically sensing production facilities along with real-time data monitoring through tech labs helps find out lagging activities along with a detailed time-to-time analysis to scientists. As mentioned earlier, Merck also has five locations which employ 3D-printing technology in creating prototypes of various tissue to trace chemical and biological activity in addition to develop rarely available manufacturing parts.

Merck is ahead in the game given its wide information exchange globally along with expertise under the elite IT team headed by Dave Williams, serving as Chief Information and Digital Officer for Merck & Co Inc. Merck along with IBM, Walmart and KPMG is collaborating to create a pharmaceutical block chain focused at supply chain of drugs which comes after the enactment of Drug Supply Chain Security Act, in November 2013 which mandates on creating an electronic and interoperable tracking and tracing system for prescription drugs in the US.[footnoteRef:161] Merck also has task table for creating a long-term value which is followed under all strategic considerations developed by the CEO, Ken which Merck is always committed shown in the figure 7 below. [161: Wolfson, R. (2019, June 13). Merck and Walmart Will Track Prescription Drugs on IBM Blockchain In FDA Pilot. Forbes. https://www.forbes.com/sites/rachelwolfson/2019/06/13/merck-and-walmart-will-track-prescription-drugs-on-ibm-blockchain-in-fda-pilot/#6723149d212e ]

Figure 7: Working Matrix of Merck for creating long-term[footnoteRef:162] [162: Feloni, R. (2018, March 9). This chart created by Merck's CEO helps the pharma giant set its long-term strategy. Business Insider. https://www.businessinsider.com/merck-chart-sets-strategic-priorities-2018-3]

Above matrix specifies Merck’s action taken in order to achieve high impact for shareholders while conducting successful business by evolving accordingly. With the help of ongoing restructuring using digital technological transformation along with seeking opportunities by conducting early research and clinical trials, integrated supplier to customer database gives Merck a competitive advantage to differentiate itself in the global pharma. An effective and insightful working matrix in place to validate every strategic action taken as well as devising strategies to exploit the opportunity arising due to rapid changing external environment, Merck has its advantage to succeed and sustain using IT and control systems in place in delivering its vision of serving patients in this digital era.

Daft explained that companies grow in size to acquire and compete on a global scale while investing in new technology and creating a wider impact on global business which is true in case of firms like Merck, Pfizer, JNJ and so on.[footnoteRef:163] Organizational size of Merck resembles Big Company/Small Company Hybrid style as described by Jack Welch, explained by Daft. Merck is one of the top ten largest pharmaceutical companies in the world by acquiring 4.4% of market share in 2018 among the global drug industry and listed one in top five biopharma firms in the US in 2020. Merck discovers, develops, manufactures, and markets human health and animal health patented drugs along with women healthcare products and biosimilars. However, Merck is planning a spin off called as Organon & Co which will produce and market women healthcare as well as biosimilars separately by 2021. As of December 31, 2019, Merck reported that it had nearly 71,000 employees worldwide with 26,000 employed in the US raising worldwide revenues of $46.84 billion.[footnoteRef:164] With more than 50 manufacturing facilities, Merck has grown into a sophisticated organization with its robust structure involving itself in aggressive mergers and acquisitions. Some of major game changing M&As include merging with Schering Plough in 2009, Roseta Inpharmatics, Inc., in 2001, Aton Pharma, Inc., in 2004, Sirna Therapeutics, Inc., in 2006, Novacardia, Inc., in 2007, acquired Peloton Therapeutics in July, and Antelliq Corporation & Immune Design in April 2019, Viralytics Limited (Viralytics) and strategic collaboration with Eisai Co., Ltd. in 2018, Rigontec GmbH along and strategic collaboration with AstraZeneca and controlling interest in Vallée S.A. (Vallée) in 2017.[footnoteRef:165] Organon & Co will be spun off as a separate branch of Merck and Co Inc., making women health products, trusted legacy brands and biosimilars in 2021. [163: Daft, R.L., & Armstrong, A. (2015). Organization Theory and Design (3rd ed.). Toronto, ON: Nelson Education.] [164: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf] [165: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf]

Daft described organizational life cycle as a cycle consisting of four phases: entrepreneurial, collective, formalization, and elaborative stages. Every organization transforms from one phase to another during its whole existence; usually organizations successful in first year often fail to succeed after five years as demonstrated by Daft.[footnoteRef:166] Merck began its journey as an entrepreneurial firm by selling chemicals across New York in 1891 and soon grew into an elaborated organization by late 20th century. Over years, vast organizational size has built up siloes inside Merck which hindered their performance during 90s seeking re-formalizing their policies in early 2000s. In its quest to grow further, Merck began restructuring in 2016 in an effort to transform the company into a pure research-based organization reinstating their purpose and values. [166: Daft, R.L., & Armstrong, A. (2015). Organization Theory and Design (3rd ed.). Toronto, ON: Nelson Education.]

Merck has reported total revenues of $46.84 billion in 2019, $ 42.3 billion in 2018, $ 40.2 billion in 2017, $ 39.9 billion in 2016 and $ 39.5 billion in 2015 according to their SEC filings.[footnoteRef:167] As any other pharma giant, Merck is also exposed to risk incurring losses from generic competition and loss of patent exclusivity in various regions depending on the validity. Merck had significant impact on its net profits due to lost patent exclusivity for ‘singulair’ in 2012 whose earnings fell by 8% in 2013 Q1 where they had to invest $15 billion for share buybacks in 2013.[footnoteRef:168] Merck is expected to incur losses in fiscal 2020 due to expiration of Emend for injection in Europe and Japan, Birdion and Lenvima in China which could be doubled in the US and European markets given expiration due by 2023. Yahoo Finance as well as Bloomberg analysts have also published article on various firms losing patent exclusivity incurring losses such as Pfizer, JNJ, Merck and Sanofi. Thus, loss of patent exclusivity is an inevitable phase for any pharma which needs focused and early research efforts in creating new medicines to seek advantage of lucrative nature of the industry. [167: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf] [168: Stynes, T. (2013, May 1). Merck net falls on loss of Singulair patent. Market Watch. https://www.marketwatch.com/story/merck-net-falls-on-loss-of-singulair-patent-2013-05-01 ]

Figure 8: Market cap of top global pharmaceuticals[footnoteRef:169] [169: Data Source: https://www.globaldata.com/top-20-global-innovative-pharma-companies-lose-us2-6-trillion-market-capitalization-in-q1-2020-vs-q4-2019-says-globaldata/]

With the constant EPS growth rate at -100% from 2016 to 2019 according to Yahoo Finance and SEC filings data, Merck is at peak of growth giving it a room for boosting revenues from emerging markets. However, discovering new drugs is aa definite possibility of increasing revenues irrespective of growth rate as new drugs cater to either unknown diseases or discovering new medicines for known diseases. With the ongoing Restructuring Program, Merck is all set to grow as a pure science-based organization. With given its spending structure on R&D, Merck is keen on achieving breakthroughs in oncology with Keytruda along with kinase base treatments indicating its growth potential overall. It can be noted from above discussion that Merck has transitioned itself through stages of life cycle and positioned in an elaborated phase, which now is being transitioned into entrepreneurial stage by restructuring its operations and global locations in an effort to be differentiating in this globalizing era. Despite such setbacks, Merck is still growing in global markets by tapping new markets in Asia whose potential is unclear. As aforementioned, market performance of Merck suggests that it could grow with a limited margin using collaborative agreements and strategic partnerships as well as focused and applied R&D by moving into entrepreneurial phase.

Every organization goes through the phase of temporary decline during its life cycle while the responsive mechanism of the company makes a difference either by sustaining or succeeding or dying in the end. Daft explained organizational decline occurring in five phases: blinded stage, inaction stage, faulty action stage, crisis stage and dissolution stage.[footnoteRef:170] Blinded stage can be revamped using good information of externalities, while inaction and faulty phases can be resolved through taking prompt and corrective actions respectively, crisis can be saved by effective reorganization whereas dissolution stage is definite dead phase which has no solutions except bankruptcy. [170: Daft, R.L., & Armstrong, A. (2015). Organization Theory and Design (3rd ed.). Toronto, ON: Nelson Education.]

It is fascinating that Merck’s stock grew up by 40% over last five years despite considerably low revenues in 2017 and 2016 with their price-to-earnings growth ration is 1.7.[footnoteRef:171] Powerful growth driver is Keytruda which shook up the stock market by boosting their revenues about 45% high in only one year. Investors and analysts estimate that Merck’s Keytruda is going to the highest grossing drug surpassing AbbVie’s Humira by 2025.[footnoteRef:172]With Pfizer’s stock growing at 35% and JNJ much lower and Keytruda being in a blockbuster, Merck’s performance is expected to peak in the industry. Merck’s new acquisitions Taiho and Astex, and ArQule especially for oncology and rare disease developments, it is all set to pioneer in next couple of years moving into a focused research-based organization.[footnoteRef:173] Despite inevitable LOEs, Merck has buckled up its strategies by restructuring and allocating vast capital for early R&D along with 55% raise of revenues from Keytruda as well as developing vaccine for fighting COVID-19, Merck is not even close of a declining phase. It shows Merck’s ability of taking prompt action since 2016 in order to tackle issues arising out of globalization by revamping its global structure as well as its supply chain and demand integration initiatives. [171: Bakiny, P. J. (2020, February 19). Is Merck & Co. Stock a Buy?. Motley Fool. https://www.fool.com/investing/2020/02/19/is-merck-co-stock-a-buy.aspx ] [172: Keown, A. (2019, October 4). Keytruda Set to Become World’s Top-Selling Drug, Forecast Shows. BioSpace. https://www.biospace.com/article/keytruda-set-to-become-world-s-top-selling-drug-forecast-shows/ ] [173: Bakiny, P. J. (2020, February 19). Is Merck & Co. Stock a Buy?. Motley Fool. https://www.fool.com/investing/2020/02/19/is-merck-co-stock-a-buy.aspx ]

Figure 9: Stock trend of Merck & Co.[footnoteRef:174] [174: Thomas, B. (2020, January 17). 3 Things Merck Investors Need to Know In 2020. Seeking Alpha. https://seekingalpha.com/article/4317418-3-things-merck-investors-need-to-know-in-2020]

Communication and culture contribute to the success or failure of any organization depending on their internal and external integration. Culture is an underlying but crucial aspect of an organization which is persistent in attracting customers as well as retaining employees. Integration and adaptability by providing guidance in decision making are three basic attributes of an organizational culture as explained by Daft.[footnoteRef:175] There are four types of the organizational culture according to Daft which are: adaptability, mission, clan, and bureaucratic cultures. Organization’s culture is evolved according to their internal environment in terms of their values, beliefs, and external environment. Adaptability facilitates change seeking and risk-taking behavior while mission culture is based on their purpose of existence and value system. On the other hand, clan culture enacts according to the employee needs and satisfaction while the bureaucratic culture is deep rooted and led hierarchically conducting business with set of rules and procedures. [175: Daft, R. L & Armstrong, A.(2015). Organization Theory and Design (3rd Cdn. ed.), Toronto, ON: Nelson Education.]

Merck seems to operate in an adaptive environment according to classification made by Daft as Merck is proactive in taking risk for achieving breakthroughs. Merck is also imperative in conducting early and explicit research and discovery in order to deliver breakthrough drugs to its patients, which is also its commitment towards its mission. Hence, Merck also has a culture of effectively using its expertise and resources in committing to its mission while risking and being flexible to external environment. Therefore, Merck fosters an organizational culture of being adaptable as well as mission oriented sending positive message to all its partners and stakeholders of the company. Merck, since their inception, is known to be growing into a mature organization by involving itself in historical mergers and acquisitions. Over years, Merck has always been a case study for effective organizational practices and culture by being an organization committing to their value system. [footnoteRef:176] [176: Weiss, S., & Bollier, D. (1994). Merck & Company, Inc: having the vision to succeed. International Business Case Studies for the Multicultural Marketplace.(London: Gulf Publishing Company).]

Ken, CEO of Merck once said, “Merck has a great future, because it has a soul” which was published by a Forbes article. [footnoteRef:177] Merck as said by its executive team, has evolved over years by acclimatizing to their own corporate and local cultures while operating in different international markets which gave them wide scope of understanding and performing with effectiveness across Merck locations globally. Merck is rated as one of the culturally positive organization in the industry with its executive team and employees sharing various instances of learning. In an interview with HBR scholars, Ken shared that Merck is known for serving their shareholders by generating profits as well as contributing positively through medicine discovery towards the society.[footnoteRef:178] According to their shared experiences through their employees and other partners, Merck has relatively positive index in terms of organizational culture published on their website. All in all, it is quite clear that Merck holds a strong organizational culture by adapting to external environment as well as striving to work for greater good. [177: Forbes, S. (2020, February 4). Merck Has A Great Future, Because It Has A Soul: Ken Frazier. Forbes. https://www.forbes.com/sites/steveforbes/2020/02/04/merck-has-a-great-future-because-it-has-a-soul-ken-frazier/#68191bfe7fdd] [178: IGNATIUS, A. (2018). “Businesses Exist to Deliver Value to Society.” Harvard Business Review, 96(2), 82–87.]

Merck over years is well known for succeeding by committing itself to its core values and setting up high standards for its business operations. Many business and academic journals were published about Merck discussing their ethics in practices. Not only stating their values on their corporate pages, but also Merck deliberately induces the same shared values among their suppliers, employees, executives, and other stakeholders. It seems that Merck is always reinstating their practices in line with their values and beliefs contributing to their mission of serving patients across the globe. Merck rolls out a handbook every year called as ‘Code of Conduct: Our values and standards’ which states their position towards their business practices while delivering their mission. Patients’ first, respect for people, ethics & integrity and innovation & scientific knowledge are four core values[footnoteRef:179] Merck is committed to, which mandates all its partners to abide by including employees, partners, alliances, and other stakeholders of company. [179: Merck & Co Inc. (2020). Code of Conduct: Our Values and Standards. Retrieved from: https://www.merck.com/wp-content/uploads/sites/5/2020/07/MRK_BR16_Code-Of-Conduct_v1_en-US.pdf]

Merck’s code of conduct as well as their corporate website states that their values are their essence and resemble very character of the company building trust among its partners. There are several anecdotes shared by various stakeholders from the Merck published on their website about company being committed to its patients and respecting people which nourishes company’s well being in its practices globally.[footnoteRef:180] Daft explained how global companies use different ways to ensure practicing of ethical behavior in their global network by devising certain policies as well as conducting social audit ensuring positive influence in the work ethic of the company.[footnoteRef:181] Merck handbook, in other words their Code of Conduct necessitates everyone inside Merck including executives to abide by it ensuring positive and reliable work environment and reasonable business practices. An interesting fact about code of conduct and their value system is that despite four basic values globally, every country has its own code of policies which portrays Merck’s commitment in integrating its corporate culture along with local subculture. [180: Merck & Co Inc. (2020). Code of Conduct: Our Values and Standards. Retrieved from: https://www.merck.com/wp-content/uploads/sites/5/2020/07/MRK_BR16_Code-Of-Conduct_v1_en-US.pdf] [181: Daft, R. L & Armstrong, A.(2015). Organization Theory and Design (3rd Cdn. ed.), Toronto, ON: Nelson Education.]

In addition, Board of Directors have an additional responsibility of monitoring four committees: audit, governance, compensation and benefits, and research committees. Governance and audit committees are an explicit piece for effective functioning of Merck who oversee every action taken as part of the commercial operations. Merck is a registered federal lobbyist as well as an active member of Pharmaceutical Research and Manufacturers of America (PhRMA) which also certain guidelines to be followed by its members. Recently in 2020, PhRMA has published new adjustments in their regulations which are now being incorporated into Merck’s policies.[footnoteRef:182] In a nutshell, such codes and practices facilitate effective integration between global subsidiaries of Merck promoting coordination among all the employees. [182: Merck & Co. (2020). Merck Statement on PhRMA Revised Marketing Code. Retrieved from: https://www.merck.com/wp-content/uploads/sites/5/2020/08/Merck_Statement_on_PhRMA_Marketing_Code-Upated-June-2020.pdf]

Innovation is at the heart of Merck’s mission which is committed to creating breakthrough drugs for improving patients’ lives. Merck is constantly striving to discover new drugs for treating known diseases as well as developing breakthrough medicines for yet-to-know diseases. In order to stay in the biopharmaceutical industry, Merck has to continuously strive discovering new drugs and be able to produce and deliver those drugs at a decent price level. For Merck to realize profits in this lucrative drug industry, Merck should not only develop and discover drugs but also be innovative in providing medicines at a cutting-edge price beating the competition. Although its development was off road in late 90s, Merck had regained its position moving ahead with the merger of Sharp & Dohme and Schering Plough. Using the facilities of Sharp & Dohme globally, Merck managed to establish itself in foreign markets. Change is the only constant which is far different from stability; seeking organizations constantly changing and adapting to change is mandatory for success today as described by Daft.[footnoteRef:183] Merck is also restructuring itself for establishing a leading position through opportunities from globalization using an ambidextrous approach. [183: Daft, R. L & Armstrong, A.(2015). Organization Theory and Design (3rd Cdn. ed.), Toronto, ON: Nelson Education.]

As of June 2020, Merck had about 64 drug candidates in pipeline with on-going clinical trials and initial phase approvals. Merck began restructuring in 2016 initially by creating a demand-fed supply chain network which is now extended to digital transformation of production processes, thereby turning itself into a pure-research based organization. Being one of the dominant global players in the drug industry, Merck under its business development plan has divested previously its slow revenue generating consumer healthcare segment as of October 01, 2014. Merck is also decoupling its women healthcare, trusted legacy brands and biosimilar units as a new publicly traded company, Organon & Co in 2021. Its acquisition of Peloton, 4D Pharma and many more recently indicate its potential of succeeding in oncology, rare disease, and cardiovascular diseases. Below are some of the major innovative milestone development taken by Merck in some focused medicinal areas.

1. Not Disrupt instead Innovate

Merck has been successful in innovating not only drugs but new definition of innovation in the organization. In other words, it is about efficacy in processes as well as developments without disturbing regular R&D unit. Merck’s Emerging Businesses (EB) has been pioneering in translating a normal idea from a team in the company to an actual drug without involving with regular research center. Merck began a journey in 2012 where an opportunity was sensed growing investment using its existing competencies. They established Global Health Innovation (GHI) Fund and health services unit to identify and solve unmet medical needs apart from providing only medicines, published by HBR article.[footnoteRef:184] [184: Cespedes, F. V., Galeota, J., & Wong, M. (2015). How Merck Is Trying to Keep Disrupters at Bay. Harvard Business Review Digital Articles, 2–5.]

Today GHI is committed to finding advanced companies which might add an advantage in the patients’ lives such as activity monitoring IT companies, data analytic firms, focused medicinal drug development firms and so on. Merck’s fourth commercial operating segment is their health services segments which gains revenues by advising treatment and therapy plans to patients as well as educating patients and medical professionals. Executives at EB said that integration and vital experimentation are the key attributes for innovation instead of traditional new product success.

2. Focused Innovation: AMP-PD

Merck in coordination with the National Institutes of Health (NIH) and various public and private organizations has begun connecting across the US to help the Parkinson’s suffering patients. In January 2018, a program called Accelerated Medicines Partnership for Parkinson’s Disease (AMP-PD) was launched, consisting of nine members which included NIH, FDA, Merck, Pfizer, GSK, Sanofi, Michael J Fox Foundation, and others.[footnoteRef:185] Under this program, Merck connects with the Parkinson’s effected patients, doctors, care takers seeking constant monitoring of patients. Such an opportunity gives researchers a chance to observe patients’ behaviors, thinking processes, sleeping, and eating patterns and other daily activities in order to check and analyze their progress. AMP-PD gives an enhanced opportunity of actual monitoring by using the sensors which are the state-of-art developments of IBM provide complete picture of all the parameters of patients’ bodies, thus easier to devise further plan for treatment. [185: Science of Parkinson’s. (2019, November 22). The Science of Parkinson's. Retrieved from: https://scienceofparkinsons.com/2019/11/22/amp-pd-is-here/#more-55771]

Daft summarized that change in an organization can be done through four ways: technology, products and services, strategy, and structure. Strategy and structure changes are done through top-down approach as leader communicates the vision for change while managers cater ways to change by designing focused strategies for obtaining an overall competitive advantage. Given organizational values and culture inside Merck, change was not complicated to implement as Merck over years has been change ready institution. Ken since 2011 has substantially increased R&D budget which was attractive to major clan of stakeholders inside the company. Divestiture of consumer healthcare business as of October 1, 2014 also has given Merck a new strategic direction, exploring the business by reinstating their focus towards their areas of expertise such as animal and human health products.

Merck was operating in three business segments in fiscal 2014 which were Pharmaceutical, Animal health and Alliances segments of which only Pharmaceutical was the only reportable.[footnoteRef:186] With the initiative taken by Merck EB group, health services segment was developed which made Merck to restructure their business into four operating segments in 2015.[footnoteRef:187] After divestitures and certain collaborations in oncology and rare disease along with AstraZeneca in 2015, Merck has begun to integrate its supply chain with the real time demand driving systems in 2016. Having an integrated real time supply chain will promote cost savings of about 30% of overall manufacturing costs which were established in the pilot stage of the manufacturing optimization.[footnoteRef:188] Their restructuring program was also aimed at reducing their global real-estate footprint while achieving maximized profits by improving operating efficiency. In addition, the planned spin-off of slow growing women healthcare and trusted legacy brands, Merck is all set for travelling on a new path unleashing the new opportunities of growth by transforming itself into a technologically advanced, pure science-based research biopharma. [186: Merck & Co. (n.d.). Merck & Co 2014 Annual Review. Retrieved from: http://d1lge852tjjqow.cloudfront.net/CIK-0000310158/fd6051bf-9334-4dcc-be51-9f07b61c2ed4.pdf] [187: Merck & Co. (n.d.). Merck & Co 2015 Annual Review. Retrieved from: http://d1lge852tjjqow.cloudfront.net/CIK-0000310158/7fb6d559-f3b5-4f9c-a63e-e5a5f41f7d6b.pdf] [188: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf]

By very nature of operating industry, decision-making is primarily governed by analytic data and evidences from pre and post clinical trials in terms of drug performance and side effects. Although science is the prime basis of decision, companies still use their power and presence in the markets to produce and deliver their own products as they enjoy the advantage of patent exclusivity. Having said that, FDA, EMA and other national medical agencies also have predominant power in terms of allowing certain company or drug to be utilized in their respective nations. As Daft mentioned, organizational decision-making is dependent on the internal culture and processes as well as external environment which can be classified into four types: management-science model, Carnegie model, incremental decision and garbage can model[footnoteRef:189]. Merck according to its operating industry has to be fast in responding to the changes in environment which takes a contingency based decision-making under high-velocity environment. [189: Daft, R. L & Armstrong, A.(2015). Organization Theory and Design (3rd Cdn. ed.), Toronto, ON: Nelson Education.]

Technical knowledge and high-velocity environment are the basic attributes of drug industry which forces Merck to be ahead through its action in terms of discovery and following industry best practices. Along with contingency approach in terms of discovery, Merck uses a combination of incremental and Carnegie models in order to solve a problem arising out of business activities other than R&D. For instance, restructuring program was aimed at being adaptive to the changing external environment which was discussed and measured against external factors by realizing potential savings in terms of manufacturing while globalizing. With an openness inside the company, employees and other partners are free to provide an idea for building on and actively experimenting inside Merck. One such basic idea of having a 3D-printing lab in 2012,[footnoteRef:190] today has five labs which are wholly created and developed by Merck’s teams which shows its commitment to its people fulfilling its value ‘respect for people’. [190: Merck & Co. (n.d.). Merck & Co Overview. Retrieved from: https://www.merck.com/stories/if-you-build-it-in-3d-it-will-come/]

Merck collects real-world data (RWD), uses various analytic software platforms while conducting research as well as producing so that it can timely monitor the ongoing changes in the process. Such precision production allows Merck to identify problems and hence developing solutions in order to mitigate the delivery and other supply chain issues for long term value proposition. While clinal and approval studies, RWD leads to real-time evidence (RWE) which serve as a basis for approval,[footnoteRef:191] examined by FDA, EMA and other national medical agencies. Senior management is keen on RWE while approaching agencies for approvals and patent exclusivity where timeframe is very crucial for Merck. [191: Businesswire. (2020, June 29). FDA Approves Merck’s KEYTRUDA® (pembrolizumab) for First-Line Treatment of Patients with Unresectable or Metastatic MSI-H or dMMR Colorectal Cancer. Businesswire. https://www.businesswire.com/news/home/20200629005810/en/FDA-Approves-Merck%E2%80%99s-KEYTRUDA%C2%AE-pembrolizumab-for-First-Line-Treatment-of-Patients-With-Unresectable-or-Metastatic-MSI-H-or-dMMR-Colorectal-Cancer]

With recent discovery of Keytruda in 2018 and EU approval in 2019, Merck is receiving huge profits where it is expected to be the best-selling drug by 2025 according to Wall Street analysts. Keytruda in addition with other PD-1 kinase is also set for final approval with FDA and EMA which could be used in a wide variety of cancer treatments.[footnoteRef:192] Ken and his executive ensure every year that their decisions are not financially driven by their business commitments and growth. Even during an emergency hour due to global pandemic, Merck is committed to manufacture mRNA vaccine against the SARS CoV-2 virus and serving patients globally.[footnoteRef:193] All in all, it can be noted that Merck is imperative in responding to external environment along with an effective decision-making process where bureaucracy is shelved in turn promoting Merck to be an effective and all-time learning organization. Any decision made is explicitly evidence-based irrespective of the satisficing and coalition. [192: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf] [193: Griffin, R. (2020, May 26). Merck advances COVID-19 vaccine candidates in research drive. Bloomberg. https://www.bnnbloomberg.ca/merck-advances-covid-vaccine-candidates-in-research-drive-1.1441070]

Conflict is the basic attribute present in every organization irrespective of type of industry as companies consist of people working together from different backgrounds and performing various tasks for different levels of goal achievement, also as explained by Daft.[footnoteRef:194] Pharma industry without an exception experiences conflict in a larger level where companies tend to lobby aggressively for their own success at times. [194: Daft, R. L. & Armstrong, A. (2015). Organization Theory and Design (3rd Cdn. ed.), Toronto, ON: Nelson Education.]

Merck, in this case, conducts business through interacting with governments, physicians, doctors, patients, investors, researchers, immunologists, scientists and other stakeholders. Involvement of mixed professionals during its business develops definite conflict between interests of various people. Merck operates through four segments which calls for specific segment goals for each segment, where employees under each segment have their own professional goals. When there is a gap between each of these segments although they are part of same organization, there is a conflict dynamic bolstering culture all over. In order to prevent such conflict, Merck provides a code to all its employees, executives, and other partners to collaborate by encouraging group negotiations and empowering initiatives.[footnoteRef:195] [195: Merck & Co Inc. (2020). Code of Conduct: Our Values and Standards. Retrieved from: https://www.merck.com/wp-content/uploads/sites/5/2020/07/MRK_BR16_Code-Of-Conduct_v1_en-US.pdf]

Merck also in order to ensure positive work culture inside the company, undergoes periodic restructuring ensuring there is broken chain inside the company as part of their strategic move. Recently, Merck announced their end-to-end integration of supply chain along with real-time demand forecast so as to breakdown all the silos created fostering on-time delivery and increased brand value.[footnoteRef:196] There is also periodic transitioning in leadership roles in order to mitigate the coalition which might denigrate the overall performance. Not only inside organization, but also drug industry as a whole is also succumbed to certain regulations under FDA to avoid conflict and only being committed to uplift society by eradicating each company’s personal interests. The National Center for Biotechnology Information has set aside norms promoting welfare of society. [footnoteRef:197] [196: Merck & Co. (n.d.). Company Overview. Retrieved from: https://www.merck.com/company-overview/] [197: Institute of Medicine (US) Committee on Conflict of Interest in Medical Research, Education, and Practice. (2009). Conflict of Interest in Medical Research, Education, and Practice. Retrieved from: https://www.ncbi.nlm.nih.gov/books/NBK22944/]

Daft explained how managers use their potential to influence decisions in an organization usually perceived as negative force. However, politics is not always a negative factor as it is quite important attribute while designing strategic action or executing a structural change.[footnoteRef:198] As mentioned earlier, Merck has evolved from time-to-time in terms of organizational culture and leadership in line with the external atmosphere. Power is handled in a manner that it made company stay ahead in the game inside Merck, according to their CEO Ken who over years had been deliberate in setting organization conduct according to their mission.[footnoteRef:199] Merck has decentralized operations which gives regional executives an individual power to execute their duties while working towards larger organizational goals. Merck has overall policies for conduct as well as policies for individual region which shows their power of decentralization. [198: Jarrett, M. (2017). The 4 Types of Organizational Politics. Harvard Business Review Digital Articles, 1–8.] [199: Forbes, S. (2020, February 4). Merck Has A Great Future, Because It Has A Soul: Ken Frazier. Forbes. https://www.forbes.com/sites/steveforbes/2020/02/04/merck-has-a-great-future-because-it-has-a-soul-ken-frazier/#68191bfe7fdd]

Conducting business through matrix structure, headquarters as well as regional offices are interconnected encouraging collaboration and integration between individual departments and segments. According to their corporate website, Merck’s operating spirit lies in their people as their corporate philosophy is to improve lives using people inside the organization.[footnoteRef:200] With their roots being tied to their mission by nurturing values facilitates good work ethic inside their organization facilitating Merck to grow with greater impact on the community. [200: Forbes, S. (2020, February 4). Merck Has A Great Future, Because It Has A Soul: Ken Frazier. Forbes. https://www.forbes.com/sites/steveforbes/2020/02/04/merck-has-a-great-future-because-it-has-a-soul-ken-frazier/#68191bfe7fdd]

Operating in a complex regulatory environment, Merck & Co Inc., has strongly positioned itself in the global biopharmaceutical industry. Merck is known for achieving various operational milestones since its founding in the US. Merck is a high performing organization which is both vertically and horizontally integrated facilitating strong network for international operations. Merck, initially selling chemicals in the New York, today has grown into a robust organization operating in more than 140 countries with more than 125 years of history. Such a wide presence shows its proactive nature by evolving timely and being successful through various life cycle phases.

Given its commitment to drug discovery and development with the success, Merck is incorporated in both S&P and Dow Jones Indices and is a constant member of Fortune 500. It is a known fact not every drug candidate in initial phase of clinical trial or pipeline makes it to the end of trials and enters market. New product success rate is very in the drug industry also evident from the studies conducted by NIH and Harvard scholars which has significant impact on activities of Merck. For instance, although Merck was making fairly good revenues in early 2000s, profits were very little because of the hit from costs of failed R&D.

However, Merck had increased spending on R&D substantially over years developing some of the high grossing drugs and vaccines such as Gardasil, Keytruda, and Remicade. However, global pharma industry had a major setback due to AMR beginning in 21st century where all the big pharma companies are now taking definite action to fight against AMR. Merck is also hit by the LOE which is inevitable along with AMR, is hence devising new ways in order to develop new drugs by transforming itself into a pure science and research-based organization fostering increased growth opportunities:

1. Redefining Brand Value Boosting Social Impact

Emphasizes on business initiatives and strategies taken by Merck on how they can positively influence the society. Such a strategic variable urges all of Merck’s employees as well as other partners to be conscious of every business action taken to be more focused on greater good while actively collaborating with peers in the industry fostering a positive overall growth. It also suggests about how Merck’s action is implied by its commitment towards its mission of improving lives of patients globally seeking prominence from across the foreign markets increasing revenues.

2. Innovation for Competitive Sustainability

Enlightens the essence of Merck’s existence by high goal setting and committing themselves in achieving qualitative and reliable results thus increasing their market share. Merck’s recent restructuring as well as digital transformation activities since 2016 indicate their innovative capacities by transitioning into pure research-based organization. Merck’s early business initiative of Merck GHI Fund along with its current portfolio of research candidates exhibit their prowess of rolling out blockbuster drugs for treating carcinoma and cardiovascular diseases in next five to ten years. Thus, reinstating innovation into nerves of the company is mandatory for Merck in order to utilize existing potential in developed markets as well as to explore untapped developing markets.

In a nutshell, it is an intriguing phase for Merck to explore the unknown potential in developing markets in addition to devising explicit strategies in the known markets. Merck should be more aggressive in implementing transformational plans through its focused operations by holding on to dominant position in the global biopharma industry.

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